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As the second Trump administration and Congress begins to take shape, public finance community and the engineering community are looking towards a new round of battles.
“Since the last tax bill, there is a huge education curve that’s going to be necessary again,” said Caroline Sevier, managing director, government relations & infrastructure initiatives, American Society of Civil Engineers.
“With the overall turnover that we have seen in the House and the Senate it’s about really trying to educate on the overall muni bond market and what its importance is to the nation’s infrastructure.”
The comments came during a series of panel discussions at ASCE headquarters on Tuesday. The ASCE tracks and grades the country’s infrastructure and issues a
In 2021 the country was saddled with an overall grade of C-. Concerns in the industry remain high that a flood of infrastructure spending may not be enough to stem the tide of decay.
“There are more bridges in fair and poor condition than there are in good condition in this country,” said Maria Lehman, US infrastructure market leader with GHD, a multi-national engineering firm. “Our infrastructure is not in a midlife crisis, it’s an old age crisis, and it’s all coming due at the same time.”
The ongoing need for infrastructure spending is on a collision course with a Congress looking for budget cuts. Debates are already emerging about the status of funding from the 2021 Infrastructure Investment and Jobs Act, one of the Biden Administration’s signature achievements.
“Only about 47% of IIJA funds at this point have gone out the door,” said Sevier. “I think it’s not going to be so much about what’s not going out, but how are we changing what the priorities are in the new administration?”
Sevier notes that many infrastructure investments went to Republican-led states, which may help limit the possibility of attempted clawbacks.
The incoming administration mirrors the makeup in 2017 which saw the Tax Cuts and Jobs Act become law. That included the end of tax-exempt advance refunding and put a cap on the state and local tax deduction – two highly unpopular moves in the muni community.
A renewed search for tax revenue boosters is putting the tax-exempt status of municipal bonds in the crosshairs.
“The municipal bond tax exemption is one of the largest tax expenditures that our country has,” said Emily Brock, director of the federal liaison center of the Government Finance Officers Association. “That’s different than it was in 2017. We know that we’re more vulnerable now than we were in the past.”
Politically sensitive alternatives to killing off the tax-exempt status are also being floated.
“The gas tax is a revenue raiser and can be used as an offset in any sort of tax package,” said Sevier. “This is an opportunity to do something about the gas tax, which has not been raised since 1992 and has lost all its purchasing power just at this point.”
The ASCE is advocating for an all of the above approach to help bridge an infrastructure spending gap that was not filled with IIJA funding.
Public private partnerships are often held up as a way to attract funding from the private sector, but they have limitations.
“Not every single project is a good candidate for a P3,” said Sevier. “In a lot of these more rural projects you’re just not going to see that return on investment. We need things like the bond market to make sure these traditionally Republican voting communities can fulfill all their infrastructure needs.”
“If the tax exemption was eliminated, there are some areas that could make up for it,” said Tom Kozlik, head of public policy and municipal strategy for Hilltop Securities. “They probably wouldn’t increase taxes by a substantial amount. But in most cases, folks are just going to do without.”