WASHINGTON — Sen. Ron Wyden, who recently caused a stir in the municipal bond market by proposing a tax-reform bill that would eliminate tax-exempt bonds and replace them with tax-credit bonds, said yesterday he is open to discussing possible modifications to the legislation with critics.
“We know that there is concern and I’ve already signaled to them that we’re going to be open on that point in the days ahead,” the Democrat from Oregon told The Bond Buyer after speaking about the Bipartisan Tax Fairness and Simplification Act of 2010 at the Bipartisan Policy Center here.
Wyden, a member of the Senate Finance Committee, spoke at the meeting along with the bill’s co-sponsor, Sen. Judd Gregg, R-N.H.
In the brief interview after the meeting, Wyden also pointed to the revolutionary impact that Build America Bonds have had on the muni market as proof that there can be different approaches to subsidizing state and local finance.
“I want to make it clear that I’m going to be open in terms of going forward with folks in the municipal bond area who are concerned about the language and also say that, given the appeal of the Build America Bonds, we know that this is something that can be appealing as well,” he said.
However, Wyden’s staff said later that the senator has not focused yet on how the bill might be modified.
“We’ve been talking to local governments about their concerns but we’re not at the point of announcing a way forward just yet,” an aide said.
When the senators rolled out their tax reform bill in February, it immediately was criticized by municipal market participants for proposing that tax-exempt bonds be eliminated beginning in 2011 and replaced with tax-credit bonds that would provide bondholders with a tax credit equal to 25% of the bonds’ interest costs.
The bill also would prohibit advance refundings of municipal bonds.
Market participants protested, pointing out that tax-credit bonds have never really taken off in the municipal market and are not expected to anytime soon because the rough economic climate is limiting investors’ appetites for tax credits. The market participants also warned the bill would raise the cost of borrowing for state and local governments.
The senators described their bill as the spiritual successor to the Tax Reform Act of 1986, which contained several restrictions on tax-exempt bonds, including broad arbitrage rebate restrictions, the private-activity bond volume cap, and limits on the amount of bonds that banks could buy.
Gregg said at the meeting yesterday that he and Wyden are serious about pushing the bill. “This is not an academic exercise,” he told the group.
“We are encouraged that Sens. Wyden and Gregg are willing to discuss how their bill will affect the ability of state and local governments to raise the funds they need and we look forward to working with them,” said William Daly, senior vice president of government relations for the Regional Bond Dealers Association.