Friday, Dec. 1, was a grueling day for tax reform in the Senate, with proceedings lasting from 11:00 AM to 1:50 AM on Saturday. Republicans were rewarded by their determination, passing their version of the Tax Cuts and Jobs Act. The House and Senate will now negotiate a compromise bill. With passage of the Senate’s version, we now have confirmation that tax-exempt advance refunding will be halted after December 31st.
Conference committee rules stipulate that language can only be modified within the “limits of the disagreement.” This means conferees do not have the authority to change provisions that are not in disagreement. Because both houses’ bills agree to end tax-exempt advance refunding, that matter is no longer up for discussion. From January 1, 2018, forward, any advance refundings will be done on a taxable basis. Remember in our prior blog we described that eliminating advance refundings will result in more costly consolidations of capital structures (from mergers and affiliations).
Negotiations in the conference committee will be guided by Rep. Kevin Brady (R-TX) and Sen. Orrin Hatch (R-UT), Chairmen of the House Ways and Means Committee and the Senate Finance Committee, respectively; these are the two committees that originally considered the legislation. There is no doubt the conference committee will come to an agreement. The question is, will both houses vote to approve the reconciled bill?
However, we concern ourselves most with the fate of Private Activity Bonds (PABs), which hangs in the balance of next week’s negotiations.
The House version eliminates PABs, while the Senate version does not. The issue was barely discussed in either house’s committee markup sessions, apart from a few brief exchanges. However, Chairman Brady recently indicated he may be willing to budge. Brady said on Thursday that “part of the reason for addressing it [PABs] in the House version was to have this discussion about should they continue, and if so, in what form.”
Brady may not have much choice in the matter, because 21 GOP members of the House sent him a letter objecting to the elimination of tax-exempt PABs. This is significant because Republicans only hold a 22 seat majority in the House, and it is doubtful that Speaker Paul Ryan (R-WI) will want to take any chance with the final vote. It remains to be seen what, if any, compromise will appease Representative Randy Hultgren (R-IL), Co-Chair of the Congressional Municipal Finance Caucus, and his 20 backers.
The House will vote on Monday to send the bill to the conference committee. If you happen to live in Texas’s 8th congressional district, please let your representative know that you oppose eliminating the ability of 501(c)(3) organizations to issue tax-exempt bonds (Private Activity Bonds, or PABs).
Kaufman Hall will continue to issue updates on tax reform as the process moves forward. If you would like to discuss the implications, contact your Kaufman Hall advisor, or email taxreform@kaufmanhall.com.