NACo Profiles Trump Administration Infrastructure Proposal

As previously reported on Conduit Street, the Trump Administration has proposed a far-reaching plan to boost infrastructure across multiple modes and at every level of government.

To help county officials better understand the proposal, and its potential effects on local priorities, the National Association of Counties has developed its own analysis of the package. From the NACo description:

These principles, titled “Legislative Outline for Rebuilding Infrastructure in America,” expand upon the “Infrastructure Initiative” white paper that accompanied President Trump’s FY 2018 budget back in February of 2017. The administration has stated that this document is open to revisions by Congress as they look to craft legislation based off the administration’s principles.

Read or download the NACo Analysis as a pdf document.
Read the NACo article accompanying its full analysis.

Hogan to Senators: Feds Shouldn’t Cut Bay Enforcement

In a letter to the party leadership of the U.S. Senate, Governor Hogan has called for them to reject a House (and Administration) budget proposal to reduce 90% of funds used for enforcement of Chesapeake Bay waters. Governor Hogan serves as the Chair of the regional Chesapeake Executive Council, and wrote in both capacities.

From coverage in the Baltimore Sun:

If it becomes law, this amendment will prohibit the use of Environmental Protection Agency (EPA) funds for enforcement policies and procedures that are necessary for achieving pollution reductions in the Chesapeake Bay watershed,” Hogan wrote. “While I strongly support the multi-jurisdictional approach to achieving clean water — which is working — it would be unwise to effectively remove the ability of the Clean Water Act to function as designed.”

For more information about federal EPA activities and programs, visit the EPA website.

Read the Sun coverage online for more detail.

Ruppersberger Seeks To Bring Back Refunding Bond Exemption

Maryland’s U.S. Representative Dutch Ruppersberger, along with U.S. Representative Randy Hultgren, an Illinois Republican, have sponsored a bill to bring back the federal tax break on advance refunding bonds. The federal tax exemption for the refinancing tool was removed in the federal tax reform bill.

Advance refunding bonds allow counties to refinance tax-exempt municipal bonds to save taxpayer money on outstanding debt. Previously, counties could issue one advance refunding bond per municipal bond – saving taxpayers billions nationwide on public infrastructure. That ended December 31, 2017.

Congressman Ruppersberger stated:

I’m proud to lead this bipartisan effort on behalf of local governments in Maryland who rely on this tool to finance projects that benefit everyone. We need to do what we can to help local governments create jobs while building roads, schools, hospitals, fire and police stations. When counties can issue an advance refunding bond, it saves taxpayers billions nationwide – and an average of nearly $37 million annually here in Maryland. This can translate into lower property taxes.

From Reuters:

“Given that interest rates are expected to increase, this tool is especially important to states and local governments responsibly planning for the future,” Hultgren said in a statement.

The two lawmakers co-chair the Congressional Municipal Finance Caucus, which unsuccessfully pushed to keep advance refunding bonds out of the tax bill.

The Effect of Less Desirous Debt

Federal tax reform could negatively affect the market for municipal bonds, increasing the cost of infrastructure projects for state and county governments.

Budget analyses prepared by the Department of Legislative Services for the General Assembly contain a wealth of information.

Screenshot 2018-02-16 08.56.09
The cost of borrowing could increase for State following federal tax reform, according to the Department of Legislative Services. The same effect could be seen in the county market for municipal bonds, a vehicle for local transportation infrastructure projects.

In this week’s presentation of the Operating Budget Analysis of Public Debt to the Budget and Taxation Committee, the Department describes how federal tax reform could decrease demand for municipal bonds with carry-over effects on the cost of debt for state and county governments.

The State of Maryland and counties use municipal bonds to finance a variety of public works projects, including transportation infrastructure.

From the Analysis’s Effect of Reducing Taxes on the State and Municipal Bond Market:

Most State GO bonds issued by the State are tax-exempt bonds. The purchaser of these bonds does not have to pay federal taxes on the bonds’ interest earnings. This makes these bonds especially attractive to individuals in high income tax brackets and corporations. This reduced the top bracket on individual taxes from 39.6% to 37% through calendar 2025 and reduces the top corporate income tax rate from 39% to 21% permanently. Lower tax rates reduce the amount of tax avoided by investing in tax-exempt bonds.

The Department describes the basis for this change:

  • Financial institutions, like banks and insurance companies, are estimated to own 25% of tax-exempt bonds. These institutions would require a higher interest rate to purchase tax-exempt bonds.
  • Some reports note that owners of pass-through entities, such as partnerships and Subchapter S Corporations, may also be less likely to purchase tax-exempt bonds, thereby dampening the demand and driving up prices.

DLS estimates the effect of these additional costs based on findings of a research firm’s data from the federal tax reform debates. DLS found that the State’s premium would have been reduced from $94 million to between $56 million and $69 million in its most recent bond sale in August 2017 because of higher rates.

For more information, see the Effect of Reducing Taxes on the State and Municipal Bond Market from the Budget Analysis.

Washington Post Op-Ed: Bring 911 Into the 21st Century

An opinion piece in The Washington Post calls for the Trump Administration’s infrastructure plan to include modernizing the nation’s 9-1-1 system. Specifically, the Op-Ed stresses the importance of moving to Next Generation 9-1-1, technology that will increase response times, location accuracy, and allow text, photo, and video data to be shared by callers to First Responders on their way to the emergency.

According to The Washington Post:

Even as an estimated 240 million 911 calls continue to be placed annually, the systems that service them have grown obsolete, unable to handle photos, video, downloads, precise geo-locating and even, in most places, simple text messages. That’s a threat not just to public safety but also to national security.

Worryingly, no one seems quite sure how to pay for a modernization to what’s known as Next Generation 911 (“NG911” in industry parlance), whose cost could exceed $20 billion. This week, as hundreds of public-safety and industry officials gather in the District for their annual 911 conference, many will have one main question on their minds: Why not prioritize an upgrade as part of the Trump administration’s national infrastructure project?

In Maryland, state Sen. Cheryl Kagan, a Montgomery County Democrat alarmed at the deaths of constituents in her district involving 911 breakdowns since 2006, has introduced legislation to help localities start the transition to NG911.

Advancing Maryland Next-Generation 9-1-1 Systems is one of MACo’s 2018 Legislative Initiatives. Maryland citizens demand and expect 9-1-1 emergency service to be reliable and efficient. Next-generation technology is required to keep up with this increasingly complex public safety function – improving wireless caller location, accommodating incoming text/video, and managing crisis-driven call overflows. Maryland must accelerate its move toward Next Generation 9-1-1, deliver these essential services equitably across the state, and assure effective coordination with communications providers. MACo urges a concerted statewide effort to guide this critical transition, harnessing the expertise and needs of front-line county managers.

Senate Bill 285/House Bill 634 – “Commission to Advance Next Generation 9-1-1 Across Maryland – Establishment” creates a Commission to examine at the strategic aspects of Next Generation 9-1-1 implementation in coordination with the Emergency Numbers Systems Board’s (ENSB) existing efforts, particularly ensuring that those areas outside of the statutory responsibilities of the ENSB are addressed. The Commission will study and make recommendations for the implementation, technology, funding, governance, and ongoing statewide development of Next Generation 9-1-1 to the Governor and Maryland General Assembly.

MACo is in strong support of SB 285 and HB 634, you can read the MACo testimony here.

Useful Links

The Washington Post Op-Ed: Here’s an idea for infrastructure week: Bring 911 into the 21st century

MACo Initiative: Next Gen 9-1-1 Commission Would Guide MD Forward

Conduit Street Podcast: 9-1-1 Takes Center Stage, Huge Drop of Bills Introduced, Sick Leave Law Looms, and Senate Changes Afoot

Bipartisan Water Infrastructure Funding Legislation Introduced in Congress

Last week, congressional lawmakers introduced bipartisan legislation in both chambers on Capitol Hill to provide funds for states to provide low-cost loans to improve water and sewer infrastructure.

The legislation essentially combines revolving funds with the Water Infrastructure and Innovation Act, or WIFIA. The bills would authorize $200 million annually over five years to support state revolving fund projects.

From Route Fifty

“We have a more than $500 billion shortfall for water infrastructure funding in this country. This is a national emergency,” said Sen. John Boozman, an Arkansas Republican and the Senate bill’s lead sponsor.

“This legislation is an innovative approach to helping communities of all sizes, in every state secure loans so they can improve their crumbling infrastructure,” he added.

Boozman chairs the Environment and Public Works subcommittee on fisheries, water and wildlife. Sens. Cory Booker, Jim Inhofe, and Dianne Feinstein are cosponsors.  Reps. John Katko and Earl Blumenauer sponsor the House bill.

President’s Infrastructure Plan: $200b on Feds, Rest on the Rest of Us

On Monday, the Trump Administration unveiled its long-awaited infrastructure plan to Congress. The plan includes $200 billion in federal funds; the rest of the $1.5 trillion in spending is expected from state and local governments, in addition to the private sector.

The plan calls for shortening the federal approvals processes to two years or less, focusing infrastructure needs in rural areas, and encouraging American training opportunities.

CNBC has made the text of the plan available on its website.

Baltimore Sun reporter John Fritze points out that the plan calls attention to divesting federal control over the Baltimore-Washington Parkway – an essential step towards Governor Hogan’s Traffic Relief Plan.

From NPR’s coverage:

…the proposal will not be one that offers large sums of federal funding to states for infrastructure needs, but it is instead a financing plan that shifts much of the funding burden onto the states and onto local governments.

Critics say that will lead to higher state and local taxes, and an increased reliance on user fees, such as tolls, water and sewer fees, transit fares and airline ticket taxes.

Former Secretary of Transportation Ray LaHood told NPR’s Steve Inskeep that local governments cannot afford to shoulder any more burden for funding infrastructure than they already do. Listen to the interview here.

The Good News: Maryland Spared Massive Federal Shutdown

While you were presumably sleeping, the federal government partially shut down. Then, just before dawn, the House voted through a two-year spending plan – preventing a more extended shutdown. But, the deal leaves Dreamers in the dark and infrastructure and the opioid crisis with drops in their proverbial buckets. Governing reports on what this means for states and counties.

The agreement only includes $20 billion for infrastructure – and that mostly funds existing programs. Water, energy, broadband expansion and improved surface transportation will all share these funds. In addition, it only includes $6 billion  to address the opioid crisis.

The agreement increases federal spending by $300 billion over two years. Congress has six weeks now to incorporate the additional funds into a spending plan. This could be good or bad for Maryland:

This all means that some states could benefit or take a massive hit financially, depending on how closely appropriators align themselves with the administration. For example, in Maryland, Trump has called for Congress to eliminate money for the Chesapeake Bay, a pair of high-tech biodefense laboratories in the state and several programs at NASA Goddard Space Flight Center.

Despite House Democrat Nancy Pelosi’s best efforts otherwise, the agreement does not address how to handle the Dreamers.

It does provide:

  • nearly $90 billion in disaster relief, with about ten percent of that going to Puerto Rico and the U.S. Virgin Islands;
  • long-term funding for health care programs including the Community Health Center Fund and the Children’s Health Insurance Program (CHIP);
  • $6 billion for mental health and programs addressing the opioid crisis
  • $20 billion for infrastructure

Read more here.

Senate Passes Tax Exemption Clarification

The Maryland Senate took the first step towards addressing the impacts of federal tax reform on state taxpayers this week. Senate Bill 184, sponsored by Budget and Taxation Chair Edward Kasemeyer, passed the Senate unanimously and has crossed over to the House. Its cross file, House Bill 365, sponsored by Revenues Subcommittee Chair Jay Walker, had its hearing on Wednesday of this week.

The bill clarifies that taxpayers can deduct personal exemptions for themselves, their spouse, and eligible dependents under the state and local income tax, even though they cannot do so at the federal level anymore.

According to the Department of Legislative Services and Comptroller’s analyses, the bill is merely clarifying in nature and does not have a real fiscal impact. While certainly codifying current practice, the state of Maryland exemptions was unclear after the federal government passed its tax reform bill and zeroed out federal exemptions. If taxpayers could no longer take the exemptions at the state level, local governments would have gained an additional $490 million.

The Baltimore Sun reports:

Still, even if the personal exemptions are preserved, Marylanders’ tax bills stand to rise by more than $400 million if lawmakers do not step in to preserve tax deductions eliminated on the federal level. Gov. Larry Hogan and the Democrats who lead the General Assembly have pitched dueling plans to return that money to taxpayers.

This legislation is widely seen as the least controversial of many proposals to address the windfall of revenues to state and local governments as a result of tax reform. Other proposals include but are definitely not limited to:

  • decoupling the requirement to itemize at the state level with the need to itemize at the federal level,
  • raising standard deductions,
  • raising exemption amounts or indexing them to inflation, and
  • ensuring that property taxes are still deductible from state and local income taxes.

Caucus Proposes Tax Reform Mitigation Package

The Senate Republican Caucus is pushing its own package for addressing the impacts of federal tax reform on Maryland taxpayers. Their plan entails allowing people to itemize at the state level even if they do not at the federal level, and increases deductions or lowers rates to keep state tax bills constant.

There is general agreement about “decoupling” the itemization requirement from federal taxes, reports The Frederick News-Post

Other proposals include:

[Governor] Hogan, in addition to decoupling federal and state taxes, will aim to make permanent a provision in the Maryland tax code that says state taxes will not be impacted by federal changes for one year.

Senate President Thomas V. Mike Miller Jr. (D) and House Speaker Michael E. Busch (D) proposed a plan last month from Democratic legislators that would restore personal exemptions and create a state-run education fund that would allow Marylanders to claim donations as charitable expenses for tax purposes.

They would also try to negate the doubling of the federal estate tax exemption from $5 to $10 million by keeping it at $5 million in Maryland.

Quick Links

Current State Tax Legislation With Potential County Impact

Conduit Street Taxes and Revenues coverage