The Bond Buyer - - Front Page - By Michael Bel­sky

GOP tax bill pro­vides lit­tle op­por­tu­nity for a demo­cratic process of de­bate and com­pro­mise

To work well, pub­lic pol­icy in a democ­racy must be trans­par­ent and al­low time for de­bate, in­put and anal­y­sis. The House Ways and Means Com­mit­tee just re­leased its tax plan and is sched­uled to have it adopted by year end.

The Sen­ate is on a sim­i­lar fast track. Yet the pro­vi­sions with re­spect to mu­nic­i­pal bonds have broad ram­i­fi­ca­tions for in­fra­struc­ture de­vel­op­ment, health­care and higher ed­u­ca­tion costs and af­ford­able hous­ing to name a few.

The given time frame pro­vides lit­tle op­por­tu­nity for a demo­cratic process of de­bate and com­pro­mise to take place. More im­por­tantly the process leaves no time for a cru­cial cost ben­e­fit anal­y­sis nor to ac­count for po­ten­tial neg­a­tive so­cial im­pacts.

The plan calls for the elim­i­na­tion of 501(c) (3) bonds used to pro­vide low cost fi­nanc­ing to hos­pi­tals, nurs­ing homes, higher ed­u­ca­tion and not-for­prof­its.

Ac­cord­ing to in­dus­try ex­perts there were $72.4 bil­lion of such bonds is­sued in 2016. These same ex­perts pre­dict that elim­i­nat­ing tax ex­emp­tion for these en­ti­ties will in­crease bor­row­ing costs by 25 to 30%.

Take for ex­am­ple nurs­ing homes and as­sisted liv­ing fa­cil­i­ties. Ac­cord­ing to the Cen­sus Bu­reau the na­tion’s 65 and older pop­u­la­tion will reach 83.7 mil­lion peo­ple by 2050.

This is dou­ble the pop­u­la­tion of 43 mil­lion as of the 2012 cen­sus. This tax plan does not ac­count for what this will do to the cost of meet­ing the grow­ing needs of this pop­u­la­tion.

We have an opi­oid epi­demic in this coun­try where over 50,000 to 60,000 peo­ple are los­ing their lives each year, and ac­cord­ing to the New York Times the lead­ing cause of death for Amer­i­cans un­der 50.

The pres­i­dent has made this a pri­or­ity yet this tax pro­posal will as­sure that needed drug re­hab cen­ters will likely not get con­structed.

We have a health­care cri­sis in this coun­try where cost in­creases at 4.89% last year well out­stripped in­fla­tion. Where does Congress think higher fi­nanc­ing costs for hos­pi­tal will be ab­sorbed?

The same ques­tion can be asked with re­spect to higher ed­u­ca­tion as the bill will re­quire pri­vate col­leges and uni­ver­si­ties, as well as stu­dent loan providers to bor­row at higher rates of in­ter­est.

The pro­posal will also elim­i­nate pri­vate ac­tiv­ity bonds that fi­nance in­fra­struc­ture. This in­cludes projects such as air­ports, light rail and solid waste fa­cil­i­ties.

This is in­fra­struc­ture as ba­sic as roads and bridges and cru­cial to job growth and eco­nomic de­vel­op­ment. This is ironic in that pri­vate ac­tiv­ity bonds by de­sign pro­mote pub­lic pri­vate part­ner­ships needed to close the one tril­lion dol­lar in­fra­struc­ture gap, a mantra of the Trump ad­min­is­tra­tion and the Repub­li­cans.

An­other as­pect of the tax plan is to elim­i­nate ad­vance re­fund­ings. Re­fund­ing bonds al­low states, cities and schools to re­fi­nance debt, much like a home­owner re­fi­nances a mort­gage when in­ter­est rates drop.

Last year state and lo­cal tax­pay­ers saved $3.0 bil­lion as a re­sult of this fi­nanc­ing op­tion.

I re­al­ize that the deficit re­duc­tion is cru­cial to eco­nomic growth (though this tax plan will add $1.5 tril­lion to the deficit over the next 10 years).

How­ever what Congress is not ac­count­ing for are the po­ten­tial im­pacts I men­tion above.

At a min­i­mum these im­pacts must be quan­ti­fied and mea­sured against deficit re­duc­tion and viewed through the prism of so­cial costs. The plan’s tim­ing pre­cludes this type of com­pre­hen­sive anal­y­sis. From a pol­i­cy­mak­ing stand­point this reck­less and un­ac­cept­able.

Michael Bel­sky is the Ex­ec­u­tive Di­rec­tor of the Cen­ter for Mu­nic­i­pal Fi­nance at the Har­ris School of Pub­lic Pol­icy at the Univer­sity of Chicago and teaches a course on the fun­da­men­tals of mu­nic­i­pal bonds as part of the Mu­nic­i­pal Fi­nance Cer­tifi­cate Pro­gram. Mr. Bel­sky is also the Manag­ing Di­rec­tor for Fixed In­come at Green­wich In­vest­ment Man­age­ment, a firm spe­cial­iz­ing in high yield mu­nic­i­pal bonds.

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