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ASA Opinion: Municipal Bonds Key to America’s Infrastructure Modernization Opportunity

These bonds support public health, clean water, affordable housing, food security, renewable energy, and public education.




By Chris Iacovella The infrastructure policy debate is kicking into high gear as Congress returns to Washington and key stakeholders, including the American Securities Association, will be making the rounds on Capitol Hill to make the case for our industry's vital role in infrastructure.

A real opportunity exists and if done right, America’s investment in infrastructure will create good-paying jobs for working families, stimulate economic growth, help to protect public health and the environment, and improve the quality of life for all Americans.


An infrastructure bill should be limited to infrastructure, without taxing job creators or hardworking Americans saving for retirement, college, or a better life for their children.


Municipal bonds, issued by state and local governments, finance infrastructure investment and should be the foundation of any modernization package. These bonds provide funding for hospitals, schools, bridges, highways, water treatment, and clean energy facilities in communities across the country. They are especially important to state and local governments facing unprecedented economic challenges from the COVID-19 pandemic.


As policymakers begin the infrastructure bill writing process, we believe the ASA’s Infrastructure Modernization Agenda is a common-sense way to move forward. ASA’s seven-point plan is centered around municipal bond policies with wide support across the financial industry and in Congress. First, Washington should ensure the municipal bond tax-exemption — which has served this country well for over 100 years — remains in place to encourage state and local governments to invest in infrastructure projects that will support jobs in their communities. Second, Congress should avoid legislating a federal infrastructure bank. Large infrastructure projects that cross state lines require partnership between federal, state, and local governments. Rather than creating a centralized bureaucracy to dictate funding from Washington, the federal government should promote and encourage the use of taxable municipal bonds for these projects. ASA’s regional financial services members have a long history of successfully financing interstate projects to modernize roads, bridges, and power grids. Now is also the time to reinstate advance refundings for municipal bonds. The elimination of tax-exempt advance refundings in the 2017 Tax Cuts and Jobs Act prevented state and local governments from refinancing their debt at historically low interest rates, and this resulted in higher costs for taxpayers. Strong bipartisan support for advance refundings exists with bills having been introduced in the House and Senate. Another widely accepted means to finance multi-state projects is the Build America Bonds (BABs) program. During the Financial Crisis, BABs functioned like municipal bonds, but were taxable and gave either a 35% direct federal subsidy to the borrower or a federal tax credit worth 35% of the interest owed to the investor. From 2009-2010, over $180 billion BABs were issued, and the program was extremely attractive to a wide range of investors. Congress should renew this program. To further support upgrading and modernizing America’s infrastructure, the threshold for municipal bonds to be bank-qualified should be increased. To meet the requirements for “bank qualification,” a municipal bond must meet several criteria and the issuer must not expect to issue more than $10 million of bonds in the calendar year. An updated minimum threshold of at least $30 million would reflect the passage of time and help to meet the needs of today’s state and local bond issuers. Congress should expand the eligibility and state allowances for private activity bonds (PABs). While tax-exempt municipal bonds are geared toward infrastructure projects with a public benefit, PABs are directed at projects for private entities that also serve a public purpose, such as an apartment complex that provides low-income housing. The 1986 Tax Act imposed a limit on how many private-activity bonds can be issued in a state each year and several eligibility restrictions dictate the way the public and private sectors can work together. These requirements should be modernized. Finally, municipal bonds have always promoted the public good by funding environmental and sustainable development projects in communities across the country. These bonds support public health, clean water, affordable housing, food security, renewable energy, and public education. As a result, municipal bonds are a ready-made way for long-term investors to participate in socially responsible investing. Infrastructure is an investment in our future that expands economic opportunity for every American. We look forward to working with Congress to send a bill to the President’s desk that will lead to a more prosperous America.

Chris Iacovella is the CEO of the American Securities Association. To read this Op-Ed at The Bond Buyer, click here.