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More financing tools may soon be available for Municipal and Non-Profit Issuers

With the light at the end of the COVID tunnel coming into view, municipal and non-profit finance leaders are increasingly becoming focused on funding strategies and options they may have for existing higher rate debt. One of the big question marks right now is whether new federal legislation will bring back tax-exempt advance refundings and/or a framework for taxable direct-pay bonds in the vein of Build America Bonds from 2009 and 2010. A few bills currently being considered by Congress suggest the answer to both may be “yes.”

Three bills in particular merit close attention:

  • A bipartisan Senate Bill introduced in March – the “LOCAL Infrastructure Act” – would bring back tax-exempt advance refundings.
  • A bipartisan House Bill introduced in April – the “Investing in our Communities Act” – mirrors the above Senate Bill and would also bring back tax-exempt advance refundings.
  • An Infrastructure Bill introduced later in April features several provisions to benefit the municipal bond market, including the creation of direct-pay taxable bonds called “America Infrastructure Bonds”, and increasing the “Bank Qualified” designation limit from $10 million to $30 million per calendar year.

The America Infrastructure Bonds would be exempt from sequestration, unlike the previous Build America Bonds.  Sequestration risk was an unanticipated risk with Build America bonds, and though its impact wasn’t enormous (on the order of six percent), the loss of that portion of the subsidy left a bad taste in the mouths of many market participants.

This time, the bill’s framers have called for a 28% subsidy that would be protected in full from sequestration. That will likely overcome any hesitation issuers may have, especially given the popularity of the Build America Bond program which saw over $180 billion in issuance during the 20 months they were available.

Increasing the Bank Qualified limit from $10 million to $30 million per calendar year will also be a significant benefit for municipalities and other tax-exempt borrowers – especially those in more rural areas. Not only will this allow for larger projects to be financed with Bank Qualified, tax-exempt bonds, but current language in the bill would allow the Bank Qualified designation to be made at the borrower level, and not the issuer level, which will be a significant benefit to 501(c)(3) borrowers.

With tax-exempt advance refundings, taxable direct-pay bonds and higher bank qualified limits on the legislative table, municipal and non-profit finance leaders may soon have several more options at their disposal when evaluating their strategic financing options.

UMB Bank Public Finance is committed to helping municipalities and non-profit institutions fulfill their growth aspirations. Visit to learn more about how we can support your organization, or contact us to be connected with a team member.


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