Virtual Hearing - Examining the Role of Municipal Bond Markets in Advancing – an... (EventID=112526)

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Connect with the House Financial Services Committee Get the latest news: https://financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/HouseFinancialCmte Follow us on Twitter: https://twitter.com/FSCDems ___________________________________ On Wednesday, April 28, 2021, at 12:00 p.m. (ET) Oversight & Investigations Subcommittee Chairman Green and Ranking Member Barr will host a virtual hearing entitled, “Examining the Role of Municipal Bond Markets in Advancing – and Undermining – Economic, Racial and Social Justice." - - - - - - - - Witnesses for this one-panel hearing will be: • William Fisher, Chief Executive Officer, Rice Capital Access Program • Gary Hall, Partner and Head of Investment Banking (Infrastructure and Public Finance), Siebert Williams Shank & Co., L.L.C. • Chelsea McDaniel, Senior Fellow, Activest • Jim Nadler, Chief Executive Officer, Kroll Bond Rating Agency • Chris Parsons, Professor of Finance, University of Southern California Overview State and local authorities, cities, and other municipal issuers in the United States issued a total of $451.2 billion in municipal bonds in 2020, the strongest year for municipal bonds since records began in 1980. This represents an 11% increase from 2019 levels ($406.8 billion) and a 41% increase from 2018 levels ($320.3 billion). Municipal bond issues continued rising in 2021 with public issuers selling $102.1 billion of municipal bonds in the first quarter of 2021 as compared to $87.9 billion issued in the first quarter of 2020.3 Education, general purpose, and transportation sectors accounted for approximately 70% of total 2020 bond issues, an increase from 67% of total 2019 bond issues. The Great Recession highlighted the importance of the bond market to state and local governments as a financial management tool.5 Similarly, state and local governments have relied heavily on municipal bonds to generate revenue during the COVID-19 pandemic, driving municipal borrowing to a 10-year high in 2020.6 The municipal bond market suffered severe disruption at the onset of the COVID-19 pandemic. In response, the CARES Act directed the Federal Reserve to establish the Municipal Liquidity Facility to extend assistance to states and municipalities so as to ease borrowing conditions in the private market. The facility faced criticism for imposing steep penalty rates and offering less generous terms than the Federal Reserve’s corporate credit facilities. Following limited utilization, the Federal Reserve terminated the Municipal Liquidity Facility at the end of 2020. Many institutions of higher learning have also turned to the bond market instead of drawing on their endowments to compensate for lost revenue during the COVID-19 pandemic. According to Barclays, 2020 set a record for university bond debt in which colleges and universities issued more than $41.3 billion in fixed-rate debt and fixed-rate debt re-financings.12 Despite the influx of university bond issuances, historically Black colleges and universities, known as HBCUs, which have historically suffered from inequitable funding levels,13 accounted for a very small portion of university bonds issued last year. The biggest borrowers in the sector were well recognized names such as the University of Virginia, Harvard, and Stanford.” The increased rates of bond issuance seen in 2020 and 2021 may continue even further, depending on the funding mechanisms used to fund President Biden’s $2.3 trillion infrastructure plan. Congressional leadership and Biden administration officials have recently spoken positively regarding Build America Bonds, a bond program created under the Obama administration, which allowed municipalities to sell taxable debt with the federal government providing tax credits equal to 35% of interest costs of the bonds. The federal government ultimately sold $181.5 billion in Build America Bonds between April 2009 and the end of 2010. Municipal Bond Issuance U.S. states and territories, political subdivisions, government agencies, and other entities (“municipal issuers”) issue bonds to raise funds for operations or public projects.18 The federal government typically exempts the interest income earned on municipal bonds from federal income tax. If the bondholder resides in the state where the bond is issued, the income from interest payments may also be exempt from state and local taxes.20 These exemptions both motivate investors to purchase the bonds and lowers the cost of capital for the state and local governments who issue the bonds. Municipal bonds are generally divided into two categories: general obligation bonds and revenue bonds. General obligation bonds are issued by government entities and are backed by the “full faith and credit” of the issuing municipality. In contrast, revenue bonds are supported by a specific revenue source, typically the income... Hearing page: https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=407537