The recently passed $1.2 trillion spending bill by the U.S. Senate and signed by President Biden did not directly address the key legislative issues affecting the municipal bond market. However, there are flickers of hope for potential reforms in the coming months leading up to the November elections. Initiatives such as reforming rules on Low Income Housing Tax Credits to 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 some progress in the 118th Congress, although they have not yet been included in the recent bill. Despite this, the move to keep the government funded provides stability for the market and ensures continued access to federal programs and funding that issuers rely on.
The bill passed the Senate with a 74-24 vote, setting the next budgetary deadline for September 30, the end of the fiscal year, just over a month before the elections. President Biden acknowledged the compromise reflected in the bill, highlighting the rejection of extreme cuts proposed by House Republicans and the allocation of funds for various programs such as childcare, cancer research, mental health, and security measures. The package also includes funding for defense, homeland security, and financial services. However, there were cuts to FEMA shelters and delays in expanding childcare programs and the child tax credit due to political issues in the Senate.
Despite strong support in the House, legislation related to affordable housing provisions has been stalled in the Senate for nearly two months, mainly due to broader political issues. Emily Cadik, CEO of the Affordable Housing Tax Credit Coalition, expresses hope for finding a compromise to advance this important tax legislation as the elections draw closer. Similarly, efforts to lift the cap on the state and local tax deduction were temporarily halted by New York Republicans, who demanded its inclusion in any tax package. Speaker Johnson promised a standalone bill for this purpose, emphasizing the need for bipartisan support on tax-related issues.
With Congress in recess until April 8, the window for meaningful legislative action is narrowing. Brian Egan, Director of Government Affairs at the National Association of Bond Lawyers, highlights that there are still essential tasks left for the 118th Congress, including fiscal year 2025 appropriations. The upcoming months leading up to the elections will see increased focus on political campaigns, potentially shifting attention away from critical legislative reforms for the municipal bond market.
Overall, while the recent spending bill did not directly address key issues affecting the municipal bond market, there remains hope for potential reforms in the coming months. The stability provided by keeping the government funded is essential for market participants, although challenges persist in advancing meaningful legislation amidst political complexities. As the elections approach, the focus on campaign efforts may overshadow the urgency of addressing crucial legislative reforms for the municipal bond market.