Tax-exempt municipal bonds allow LPPC members to provide electricity, fuel and supplies that keep energy prices stable for their consumers.
Principle: RETAIN, RESTORE AND ENHANCE TAX-
EXEMPT FINANCING (TEF) TOOLS
Retain, Restore and Enhance Key Public Finance Tools
As the Administration and Congress follow-up on the “Tax Cuts and Jobs Act of 2017,” it is imperative that tax-exempt financing (i.e.,the exclusion of interest on state and municipal bonds from taxable income) continues to be preserved. Any future tax legislation should also restore the ability to issue tax-exempt advance refunding bonds. Advance refunding is an important tool for municipal utilities to lower borrowing costs associated with infrastructure development, which results in lower electric rates in the communities that we serve. Additional financing tools (i.e., direct pay bonds not subject to sequestration) and comparability on energy tax incentives will also be pursued.
Principle: UPDATE PRIVATE USE RESTRICTIONS
Eliminate Undue Restrictions on Use of Tax-exempt Financing for Public Power Infrastructure Investment
Restrictions in section 141(b) of the Internal Revenue Code concerning “private use” are outdated. The Treasury Department and Congress should update the tax code and regulations addressing private use restrictions to remove unnecessarily restrictive limitations on the use of tax-exempt financing for public power infrastructure investment. Outdated private use restrictions constrain the manner in which public power systems conduct their operations. As the Administration and Congress address tax issues, LPPC will seek to reduce all counterproductive limitations on public power financing.
Principle: ELIGIBILITY FOR INFRASTRUCTURE SUPPORT
Publicly Owned Grid Infrastructure Should Be Covered By Any Federal Infrastructure Investment Program
As federal policies to support infrastructure investment are considered, it is critical they include investment in publicly owned electricity grid facilities. Like publicly owned transportation, water, and wastewater systems, the nation’s electricity infrastructure is essential to the efficient operation of the economy. Federal funding, financing, or incentives for infrastructure should be available to support electric infrastructure investments by public power utilities.
Principle: REPEAL MANDATORY SEQUESTRATION FOR BUILD AMERICA BONDS (NEW FOR 2020)
Direct Pay Bonds Can Be An Effective Financing Tool for Public Power, but Must Be Exempt from After-the-Fact Mandatory Sequestration On a Going Forward Basis
Build America Bonds (“BABs”) are taxable bonds on which the Federal Government reimburses the issuer for a portion of the interest paid. Although BABs were effective in helping finance public infrastructure projects at lower borrowing costs, the ability to issue BABs expired in 2010. In addition, the subsidy payments on existing bonds have been negatively impacted by across-the-board-cuts – sequestration – that went into effect on March 1, 2013. LPPC urges repealing sequestration of payments for existing BABs on a going forward basis and supports the reinstatement of BABs (or other direct pay bond programs) to support infrastructure investment without exposure to future sequestration.
Principle: ALLOW FLEXIBILITY IN OPTIMIZING RESOURCE PLANNING
Public Power Utilities Undertake Careful Generation and Transmission Resource Planning to Ensure Reliability, Affordability, and Environmental Stewardship
States and utilities should have flexibility in resource planning to achieve cost-effective portfolios that meet planning objectives on a “best-fit” basis. This approach will ensure consideration for regional and market differences, resource and infrastructure availability, and the optimal combination of resource attributes and system performance.
Principle: STREAMLINE PERMITTING
Permitting for Energy Infrastructure Should Be Streamlined
Necessary energy infrastructure development too often runs into bureaucratic obstacles. Federal and state regulators and land agencies should provide for efficient review of applications related to energy infrastructure projects, consistent with the Administration’s priority on energy infrastructure development. Inter-agency coordination in federal permitting is critical, as is effective federal-state collaboration. Such coordination is also critical in relicensing of existing facilities, such as hydroelectric facilities.
LPPC members, like states, municipalities and other local government entities, use municipal bonds to invest in new infrastructure in the most affordable manner for the communities we serve. The interest earned on municipal bonds is currently exempt from federal income tax. In any future tax reform debates, Congress should continue the current federal tax treatment of municipal bonds. It is the primary financing tool of critical infrastructure investments and directly affects the prices that public power consumers pay for electricity, especially small business and low- and fixed-income households.
Every year, public power utilities average $15 billion in new infrastructure investment. This includes investments in power generation, transmission, distribution, reliability, demand control, efficiency and emissions control—which are all needed to deliver safe, affordable and reliable electricity. Over the next five years, LPPC members will issue $14.25 billion in tax-exempt municipal bonds to build and improve critical infrastructure to ensure reliability of the grid.
The U.S. municipal bond market is established and sound. With a robust and comprehensive federal legislative and regulatory system in place, investors and taxpayers are well-protected. LPPC members are significant participants in the municipal bond market; members currently hold $68.47 billion in tax-exempt bonds.
Limiting or eliminating the income tax exemption for interest from municipal bonds would increase borrowing costs for public power and other state and local governments and, as a result, would reduce investments in vital infrastructure across the country and increase the cost of electricity for public power consumers.
Maintaining the current exclusion for municipal bond interest is essential for infrastructure investment, economic growth, and job creation. They serve the best interests of communities.
As part of the American Recovery and Reinvestment Act of 2009, Congress provided state and local governments, including public power, with a new kind of financing tool. Build America Bonds (BABs) address the disruption in the municipal bond market that resulted from the financial crisis.
These direct pay bonds were taxable bonds that the federal government reimbursed the issuer for a portion of the interest paid. They have helped state and local governments finance public infrastructure projects at lower borrowing costs. They expired at the end of 2010, and interest subsidy payments on existing were impacted by budget sequestration.
Direct payment bonds can be a useful complement to municipal bonds, and LPPC supports the addition of direct payment bond programs to support infrastructure investment and job creation.