January 13, 2026

RE: Protecting & Enhancing Tax-exempt Municipal Bonds

Dear Senators and Representatives,

On behalf of the Public Finance Network (PFN) coalition, we appreciate the work that was done in the first session of this Congress to preserve and expand tax-exempt municipal bonds. The national organizations listed below represent hundreds of thousands of public sector entities that issue debt to finance and build the infrastructure that contributes to strong economies at the state and local levels across the country. For more than a century, states, local governments, and nonprofits have financed infrastructure and community improvement projects using tax-exempt municipal bonds. This infrastructure makes nearly every aspect of daily life possible and is critical in building and maintaining a strong economy for every citizen and business in the country. As such, we look forward to continuing our work together to ensure public sector entities can continue to use this critical financing tool.

We appreciate the focus on Capitol Hill during the first session of the 119th Congress on preparing to enact both water infrastructure and surface transportation reauthorization legislation this fiscal year, funding critical infrastructure projects and authorizing other investments that are much needed to address our nation’s aging infrastructure. As a coalition, PFN has continued to collectively stress that infrastructure investments are the result of a combination of funding and financing, with state and local governments shouldering the bulk of the costs. As the second session of the 119th Congress begins, and
as Congress works to enact infrastructure reauthorization legislation, now is the time to enhance the financing tools available to spur public investment in infrastructure and save taxpayer dollars.

Municipal bonds finance infrastructure projects that go well beyond just roads and bridges. This is evidenced in the broad diversity of the issuer groups listed below. Everything from the construction and preservation of roads, airports, highways, bridges, public transportation, affordable housing, water and wastewater, schools, libraries, town halls, nonprofit hospitals and universities, and electric power and gas facilities are just a few examples among a multitude of public projects that rely on tax-exempt municipal bonds. It is that shared priority that brings us together today to write to you.

Above all else, our cohesion is centered around our commitment to preserving the municipal bond tax exemption. We appreciate that Congress recognized that elimination, reduction, or capping of the tax exemption would pose immediate increased costs to the critical projects financed by state and local issuers and preserved this critical local financing tool already this Congress. Added costs to capital projects would force state and local governments to make difficult and pro-recessionary choices and these increased costs would ultimately be borne by the American taxpayer.

There is broad bipartisan support in Congress to enhance municipal bonds for state and local governments, thereby providing a more powerful, cost-effective way to drive further investment and economic growth. We urge members of Congress to join in supporting these bipartisan provisions:

Restore the Tax-Exemption for Advance Refunding Municipal Bonds: Before January 1, 2018, municipal issuers were able to issue single tax-exempt advance refunding bonds prior to 90 days before call date of the bond. Advance refunding allowed state and local governments to effectively refinance their outstanding debt to take advantage of more favorable interest rate environments or covenant terms. Advance refunding bonds frequently provided issuers with the flexibility to lower debt service charges that would otherwise be a fixed cost. The Government Finance Officers Association (GFOA) found that between 2007 and 2017, there were over 12,000 tax-exempt advance refunding issuances nationwide which generated over $18 billion in savings for tax and ratepayers over the ten-year period. Prior to their elimination in the Tax Cuts and Jobs Act (“TCJA”) (P.L. 115-97), advance refunding bonds made up approximately 27 percent of bond issuances in 2016. Restoration of advance refunding would require an act of Congress but would be one of the most effective actions to provide state and local governments with more financial flexibility to increase infrastructure investment. Therefore, we urge the passage of current bipartisan legislation – S. 1481 (Lifting Our Communities through Advance Liquidity for Infrastructure Act) and H.R. 1255 (Investing in Our Communities Act) – to restore this vital cost-saving tool.

Support Small Issuers: We recommend exploring additional ways to enhance smaller communities’ access to capital.

Oftentimes, community banks serve as the primary source of capital for communities and nonprofit borrowers. These community banks generally cannot deduct the borrowing costs of holding tax bonds, but they may deduct up to 80 percent of the carrying costs for bonds from “qualified small issuers” that issue less than $10 million in a calendar year. This exemption allows small communities to access tax-exempt rates more easily through bank placements and reduces their financing costs. Today, however, the $10 million dollar limit set in 1986 excludes many small, oftentimes rural, communities from taking advantage of this critical source of capital. There are current bipartisan legislative efforts in Congress that many of our groups support to raise this threshold, expand its application to nonprofit borrowers, and ultimately increase the number of small communities and borrowers eligible to benefit from this “small borrowers’ exemption.”

Eliminate Sequestration for Existing Direct-Pay Bonds: While not currently permitted to be issued, in the past, Congress authorized governments to issue taxable direct-pay subsidy bonds. These bonds allowed the government/issuing entity to receive a direct payment from the federal government for the life of the bond, covering a percentage of the interest costs. Bonds under previous programs could be issued for most governmental purposes, and the subsidy generally provided the issuer with a lower net interest cost on the financing compared with conventional tax-exempt bonds. Throughout previous congresses, sequestration chipped away at the level of direct payments, challenging the cash flows of the issuers utilizing the program. The application of sequestration to existing direct-pay bonds should be eliminated.

Municipal Bonds Issued as Private Activity Bonds (PABs): The collective membership of the Public Finance Network recognizes the critical role of municipal bonds issued as private activity bonds (PABs), with some parts of our coalition exclusively issuing PABs for specific uses, such as housing. These PABs issuers also benefit from infrastructure built around specific-use projects, which is often supported by municipal bonds. Our coalition supports the varieties of financing tools available to communities around the country, including the preservation of PABs. Further, AMT should not apply for PABs used for municipalities. Our coalition is well versed in the use of PABs and the policy advancements that expanded this financing tool to a variety of uses over the past decade. As Congress considers any policies related to the use of PABs, we stand ready to be a resource for any information that you may need.

If you need issue area expertise on specific sectors of our markets, we have included contact information for the policy directors of the signing organizations. More information on the PFN can be found at: gfoa.org/pfn. We look forward to hearing from you and working with you.

Sincerely,

• Government Finance Officers Association
• Airports Council International – North America
• American Association of State Highway and Transportation Officials
• American Hospital Association
• American Planning Association
• American Public Gas Association
• American Public Power Association
• American Public Transportation Association
• American Public Works Association
• American Securities Association
• American Society of Civil Engineers
• American Water Works Association
• Association of Metropolitan Water Agencies
• Association of Public and Land Grant Universities
• Association of School Business Officials International
• Bond Dealers of America
• Council of Development Finance Agencies
• Council of Infrastructure Financing Authorities
• Education Finance Council
• International City/County Management Association
• Large Public Power Council
• National Alliance for Public Charter Schools
• National Association of Bond Lawyers
• National Association of Clean Water Agencies
• National Association of College and University Business Officers
• National Association of Counties
• National Assoc. of Health and Educational Facilities Finance Authorities
• National Association of Municipal Advisors
• National Association of Regional Councils
• National Association of State Auditors, Comptrollers and Treasurers
• National Association of State Treasurers
• National Association of Towns and Townships
• National Community Development Association
• National Conference of State Legislatures
• National Council of State Housing Agencies
• National League of Cities
• National Special Districts Association
• Native American Finance Officers Association
• Securities Industry and Financial Markets Association
• The Council of State Governments
• The United States Conference of Mayors