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A bicameral tax reform agreement released by congressional Republicans on December 15 would preserve the ability of communities to issue tax-exempt municipal bonds to finance drinking water and wastewater infrastructure projects – which had been AMWA’s top priority heading into the tax reform debate.  But the bill would dial back the ability of communities to advance refund municipal bonds when interest rates decrease, which until now has been a common way for communities to further reduce financing costs.

Congressional Republicans unveiled the conference report of the Tax Cuts and Jobs Act after several weeks of negotiation among GOP leaders following the House and Senate’s earlier approvals their own versions of the bill.  Each of the earlier House and Senate bills would have maintained tax-exempt municipal bond issuances while also eliminating advance refunding opportunities beginning in 2018, so those provisions were largely expected to survive into the final bill.

The final bill also preserves current tax advantages for private activity bonds (PABs), which are tax-free bonds issued by private entities to support public purpose projects, including water and sewer infrastructure.  The House’s initial tax reform bill would have eliminated tax-free PABs beginning in 2018, while the Senate’s bill would have left PAB tax benefits in place.  Negotiators adopted the Senate’s approach, keeping current PAB rules unchanged.

While preserving tax-exempt municipal bond interest was the focus of AMWA during the tax reform debate, bonds were largely a footnote in Congress’ discussions over the massive tax bill that promises to remake the federal tax code by slashing the corporate rate, eliminating or reducing a number of personal deductions, and reshuffling personal income tax brackets.  The entire legislation is projected to cost nearly $1.5 trillion over ten years.

The House and Senate are each expected to vote on the compromise bill before lawmakers leave Washington for the holidays.  No Democrats are expected to support the bill in either chamber, but GOP leaders are confident that they will be able to advance the bill with only Republican support.  Assuming they are correct, President Trump will be expected to quickly sign the measure into law.