The infrastructure bill currently being constructed in Congress has big implications for municipal bonds, but some observers are concerned that lawmakers may opt for a smaller package, leaving key municipal bond provisions on the cutting room floor.

From the Bond Buyer:

There is concern that budget reconciliation could limit the scope of municipal bond provisions being pushed by muni advocates. Those priorities range from reinstating tax-exempt advance refunding, increasing the federal cap on private activity bonds and reinstating a direct-pay bond.

Municipal bond provisions would still stand a chance if they do go that reconciliation route, though a ten-year horizon would be challenging. A reconciliation bill would mean all costs would have to be incurred within 10 years, which contrasts with bonds with a decades-long life.

The chances of a reconciliation path appeared to rise earlier this week when Senate Minority Leader Mitch McConnell told reporters that Republicans would not support tax increases.


An infrastructure bill with at least some agreement on paying for it would make it easier for the bond provisions to become reality, Samuels said.

Samuels said the most likely outcome is there will be an infrastructure bill with municipal bond provisions which could go through the reconciliation process.“

The municipal bond provisions we’re talking about will be directly used for infrastructure,” Samuels said. “The very nature of municipal bond financing is projects will be done because you can’t issue the bonds unless you’re going to do the projects. They are relatively noncontroversial and would be very cost-effective.”

Through reconciliation, tax-exempt advance refunding would have a limited timeline and direct-pay bonds would have to fit within those 10 years.