The $1.2 trillion spending bill that was passed by the U.S. Senate and signed by President Biden on Saturday doesn’t address any of the key legislative issues affecting the municipal bond market, but flickers of hope remain in the few months before the elections in November.
Reforming rules on Low Income Housing Tax Credits that could boost issuance of private activity bonds, removing the cap on state and local income tax deductions, and loosening restrictions on aggie bonds have all seen movement in the 118th Congress, but for now they have all been left behind. The move to keep the government funded, however, is a positive in terms of stability for the market and access to federal programs and money that issuers rely on.
“I think it’s good that they kept the government open,” said Brett Bolton, VP of federal legislative & regulatory policy, Bond Dealers of America. ”But does that give me hope that additional big things are going to happen this year? At this juncture, that’s hard to say.”
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The bill passed the Senate with a 74-24 vote and moves the next set of budgetary goalposts to Sept. 30, the end of the fiscal year, and just over one month before the elections. President Biden acknowledged the hard fought deal that has Speaker Mike Johnson’s position in jeopardy via opposition from right wing House Republicans calling for his ouster.
“This agreement represents a compromise, which means neither side got everything it wanted,” said the President. ”But it rejects extreme cuts from House Republicans and expands access to childcare, invests in cancer research, funds mental health and substance use care, advances American leadership abroad, and provides resources to secure the border that my Administration successfully fought to include.”
The package also includes funding for defense, homeland security and financial services. Funding cuts include a $150 million reduction to FEMA shelters that would have helped local governments dealing with an influx of migrants.
Democrats got a billion-dollar boost for childcare programs but expanding the child tax credit is still mired in Senate committee hearings as part of the House-passed, Tax Relief for American Families and Workers Act.
“Unfortunately, despite the strong support in the House, the tax package containing the affordable housing provisions has been stuck in the Senate for nearly two months because of broader political issues,” said Emily Cadik, CEO, Affordable Housing Tax Credit Coalition.
“The closer we get to the elections, the less likely Congress is to take up meaningful legislation, so we are very hopeful that the Senate will be able to find a compromise to advance this tax legislation that would make the most significant investment in affordable housing in over two decades.”
The same bill was temporarily knocked sideways by four New York Republicans who demanded that lifting the cap on the state and local tax deduction should be included in any tax package. Speaker Johnson countered by promising them a standalone bill to remove the SALT cap.
“Speaker Johnson proposed a standalone SALT bill to get support from New York and California Republicans contingent on voting for the tax bill,” said Bolton. ”To my best knowledge that standalone SALT bill has not received a vote yet.”
Congress is in recess until April 8 as the time for meaningful action runs short. ”As we get closer to the election, attentions in Congress will focus increasingly on campaigns,” said Brian Egan, director, government affairs, National Association of Bond Lawyers.
“There are still a handful of ‘must do’ items left for the 118th Congress, not the least of which being fiscal year 2025 appropriations. Looking further out, we’re also preparing for a new Congress next year that will have to tackle expiring Tax Cuts and Jobs Act provisions.”