by Melissa Messina and David Saustad
The House Ways and Means Committee introduced the tax proposal connected with the $3.5 trillion budget reconciliation bill, the Build Back Better Act. The tax proposals included therein would restore tax-exempt advance refundings, which have been unavailable to governmental and 501(c)(3) borrowers as a means of reducing the cost of capital since the enactment of the Tax Cuts and Jobs Act of 2017. Since 2017, many borrowers have been unable to take advantage of historically low interest rates to advance refund their debt, which has led to an increase in other forms of refinancings, including forward delivery bonds, taxable advance refundings, and Cinderella financings. The reinstatement of tax-exempt advance refundings would likely provide immediate financial relief for borrowers, especially in the hard-hit non-profit senior living sector.
Over the past three years, there have been multiple attempts to reinstate tax-exempt advance refundings by Congress. However, this represents the greatest opportunity for reinstatement due to the legislation’s inclusion in the budget reconciliation package, which is expected to be voted on by the House on September 27, 2021. If passed, the legislation will be sent to the Senate, where the package is expected to have more trouble passing in its current form. The budget reconciliation package only requires a simple majority vote in the Senate, which is evenly divided between Republicans and Democrats (with Democrats breaking the tie due to the Senate President’s vote). However, the spending package has already met resistance from conservative Democrats like Kyrsten Sinema (Arizona) and Joe Manchin (West Virginia) as well as other moderate representatives, indicating that the legislation will need to downsized for the package to pass the Senate.
Ultimately, during the Senate’s review of the spending package it’s possible the reinstatement of tax-exempt advance refundings could be removed to lower the price tag. As the legislation moves through Congress and the horse trading begins, more will be known about the likelihood for reinstatement. Your team at HJ Sims will be closely monitoring the legislation’s progress through Congress and would be happy to discuss the potential reinstatement of tax-exempt advance refundings or other alternative refinancing vehicles with you.