Transcription:
Kyle Glazier (00:07):
Hello and welcome to another Bond buyer podcast. My name is Kyle Glazier, executive editor at the Bond Buyer, and I'm joined today by the bond dealers of America's, Brett Bolton, who is going to help us out with some inside baseball from the beltway. Brett, thank you for being here,
Brett Bolton (00:23):
Kyle. It's a pleasure to be here and what a timely conversation, so looking forward to it.
Kyle Glazier (00:28):
Excellent. Really appreciate it. So diving right in. Let's start with where do you sense we are at the moment with the reconciliation Bill? The last time you and I talked, there was a clear sense that sort of all options were on the table, which understandably made a lot of muni advocates like yourself nervous. But since then we've heard some encouraging defenses of the tax exemption. Do you think the danger has fallen from where it was when the list of potential offsets was originally being circulated?
Brett Bolton (00:56):
Well, let's start with where I think we are today as I think that that makes the most sense. I think the situation up on the hill is still somewhat chaotic. They are looking for a deal on how to offset this $4.5 trillion tax extension package, and I don't think we're really anywhere closer to a deal than whenever the last time we talked was Kyle Energy and Commerce has been tasked with finding 880 billion in offsets. For our listeners, most of that would need to come from Medicaid cuts. They've floated changes to state formulas, caps work requirements, et cetera, et cetera, et cetera. And I've yet to hear much progress on a deal there. So we're still a long way from finding that 880 billion to help offset the package. So I guess how does that impact ways and means? Right, so for the listeners ways and means is in charge of the tax title, meaning all tax legislation.
(01:59):
It's just a part of a broader spend and tax package that President Trump has called the one big beautiful bill. It includes spending on the border, it includes healthcare reform, it includes taxes, energy reform, et cetera. A little bit of everything is bundled up into this one big beautiful bill that's not so beautiful at the moment. So digging around looking for a deal, I think Medicaid is the largest obstacle right now. But following very closely behind that, Kyle is salt, the state and local tax deduction. There is a caucus of, I don't know, 15 or 20 blue State Republicans pushing for the salt cap to be up from $10,000 per family to 30, 40, 50 unlimited. Therein lies the problem. No one seems to know what the right answer is there. Earlier this week, it's Friday, May 9th for the record, A group of five salt caucus members went and spoke with the president and house leadership.
(03:02):
They were proposed an offer of raising the salt cap for families up to $30,000 and they treated that as just an insult. So much like Medicaid, salt, I don't feel like we're much closer to a deal at this moment than we were last year or even two years ago, if that makes sense. But with that being said, to show progress Republican leaders in the house continue to push forward. They're looking at next week, Tuesday, May 12th as a potential markup in ways and means as well as an energy and commerce without a solid deal in place. So I know this has been the ultimate windup. To answer your question about the tax exemption, I just don't think there's enough information out there right now to make a definitive call on the tax exemption. With that being said, I do feel we're in a better place and I want to point to chairman French Hill and thank him for his efforts.
(03:58):
He, along with all of his Republican House Financial Services committee sub chairs, wrote ways and means chairman Jason Smith giving a full throated defense of the tax exemption. So efforts like that cannot be underestimated in importance. That really does highlight to the chairman and his staff writing this bill that Munis have a strong coalition behind them on the hill with high ranking lawmakers. I also want to point to the efforts of the public finance network led by my good friend Emily Brock over the Government Finance Officers Association. Unlike 2017 and even unlike the covid issues of 2020, she has kept this group in line. Everybody's on the same page, we're all working off the same points and just a full defense, whether that be geo tax exemption, private activity, bond tax exemption, everybody's talking the same conversation on the hill and just the surety of that and just knowing that hill lawmakers are hearing from the right folks about the right issues and just the importance of these issues cannot be understated. So that does make me feel a little bit better about the situation we're in, but until we see the text, Kyle, I'm not going to feel. Okay.
Kyle Glazier (05:21):
That makes sense. I'm glad you brought up the salt cap because we've actually been covering that pretty closely the last few days. The cap is obviously something that issuers feel is sort of an impediment to their sovereign taxing power. Analysts say it can increase the demand for tax exempts, but to these lawmakers that you mentioned, this sort of salt caucus, it just seems to be a matter of what they view as fairness for the residents of their districts. But it seems like that needs to get hammered out before we can get really anywhere else because wherever the salt cap is is it impacts how much revenue is being lost by the federal government. So I mean isn't it the case that the salt cap being raised or eliminated creates potentially more demand for more offsets?
Brett Bolton (06:18):
It does, yeah, it really does, and it is just such a broad range of numbers we're looking at. If they're turning down the $30,000 cap, I haven't seen the score on that, but if we're looking at 40, 50, 60,000, that's probably a half a trillion dollar budget loss for the federal government over the next decade. So that just changes the math fully. I will say, Kyle, there's no deal today, again, Friday, May 9th, but I've underestimated Speaker Johnson and house leadership throughout this process. With that being said, they've punted the hard decisions to today. So the next steps are where things are going to get interesting. We've heard rumors, murmurs, whatever you want to call 'em, that the committee today may release some type of very, very, very skinny policy reveal. We think it's more of like a bullet point, if you will, outline of what the committee is looking to extend and maybe also what priorities that the president has been pushing they might try to address as well.
(07:28):
We're also hearing that they might punt a few days on listing offsets, I guess to avoid getting this picked apart over the weekend. So it's a little bit too early to tell exactly what the next step is, but this brings me back to salt. It seems like they're willing to take this list public without assault deal, so you really won't have a full picture of what the cost of the bill is going to look like or how they're going to pay for it. So it's still just an incomplete scenario that we might be presented with later today or Happy Mother's Day to all the mothers out there. You get to talk about bonds throughout the weekend if they release Saturday or Sunday. So that's just something to look forward to, I guess. But it's tough to see how they get through this portion without losing a vote.
(08:20):
Or two least we not forget that Representative Massey out of Kentucky has said he's a hard no on whatever they produce. So you have two votes to play with there. I want to say Republicans lost 12 votes back in 2017 and the SALT Caucus has grown due to underperformance from Democrats in blue states since then so that the SALT Caucus members understand they can blow this up if they want to, and I've seen some quotes where they're now insisting if they don't get the number they want, they're willing to let the entire TCJA tax cuts and Jobs Act expire at years in, so the salt cap becomes unlimited, then they can have a full conversation about the importance of salt next year once we get to that point. So I'm taking these folks serious. I know more often than not members of Congress yell loud and then just kind of die off with a whimper, but it seems like these group of 20 or so folks are really willing to die on this hill.
Kyle Glazier (09:22):
It does seem that way. So just so the listeners understand the process we're looking at here, when this initial language comes out, whether it's today, next week, sometime after whatever, that's just sort of still a preliminary deal, right? And provisions could be added or dropped from that at any time as the process continues, correct?
Brett Bolton (09:46):
Yeah. Energy and commerce, the chairman said the other day that he expects a 24 hour straight through markup of the bill. So there's going to be folks offering amendments on that one portion of the package for literally 24 hours straight. So I assume that ways and means will have a very similar process. With that being said, chairman Smith, he's all about his committee members providing feedback, but he wants it done in the privacy of a closed door room. So it'll be an interesting experiment with him in the limelight here for this massive markup. But at a minimum, the Democrats are going to have a litany of amendments to put Republicans in some sicky situations during this markup. But yeah, it's just the preliminary state. So they offer the chairman's draft, it gets marked up with amendments, the change draft will be put into the broader reconciliation package and sent to the house floor. And then chaos, I assume will reign again is we'll have a fight to see if they can bring it to the floor as is and then amendment process. And then if they can get that through the house, it's the Senate's turn and Kyle, that might be a conversation for another day because I know that the Senate will have their way with this package making changes throughout, no doubt about it.
Kyle Glazier (11:13):
Alright, so it sounds like we do have quite a lot to look forward to or not depending on your point of view, I suppose
Brett Bolton (11:21):
Deadlines provided currently. So Speaker Johnson's still sitting with his Memorial Day deadline to get this package through the house and I believe it was the Treasury Secretary said that the Senate should look at July 4th to pass this package. It'll be a miracle on both fronts. I think we're going to push to the X State whatever treasury comes up there with a debt ceiling as the most likely deadline to pass this thing through the Senate. So it's going to be a long haul through the summer, if not the early and potentially beyond if they pull the debt ceiling out. So buckle up, the fun has just begun.
Kyle Glazier (12:00):
Alright, well changing gears just slightly keeping it Washington though of course we've been covering the impact of tariffs on the muni market quite closely. Obviously the tariffs have a significant macroeconomic effect that bleeds into everything including the public finance world. What sense do you get about how this is impacting the legislative or policy processes right now? Or is it,
Brett Bolton (12:29):
Well, I think initially Kyle Congress saw the negative reaction to tariffs and said, man, we've really got to get this economy juiced again. Let's pass the tax cuts as quickly as possible. But with the 90 day pause and Congress doing what Congress does and taking their sweet time passing this, I think now you have to take a more long-term view at this. Meaning if the economy does slip into a recession or their supply chain issues or just negative turmoil from the tariffs, say this fall, if the legislative process slips like I think it's going to in that timeframe, is austerity still in style at that point? If we're in a recession, if the tariffs really do have a negative impact, are you going to have folks beating the table saying we need to cut $2 trillion of federal spending at this time? I assume there will be a portion of the House caucus that continues to push that narrative, but I think politically, especially heading into midterms in 2026, tariffs could make that a real challenging scenario for a vast majority of the Republican caucus. So then you'll have the conversation of, do we need to offset these tax cuts? Maybe we can do budget cuts at a later date, kick that down the road and just focus on juicing the economy at that point. So I think it's twofold. It sped them up but not clearly quick enough. And if we continue to slow down, I do think tariffs can change the overall math on the budget cut portion of this broader package.
Kyle Glazier (14:11):
Alright. It sounds like it still bears watching for sure.
Brett Bolton (14:14):
Absolutely. And especially once this 90 day pause ends, I don't think the UK deal yesterday really adds much clarity to the situation, to be frank. So it's something to watch heading into the summer. Absolutely.
Kyle Glazier (14:29):
Alright, and since I've got you here, what else does BDA have going right now? Is there anything you would like to share with us,
Brett Bolton (14:40):
Kyle? I think we're beyond legislative issues, clearly looking towards the new SEC chairman Paul Atkins, trying to get a better sense of what his agenda will be. I know that the BDA has proposed several changes to Mr. Atkins as well as the broader administration, especially regarding the one minute trade reporting. We feel that was regulation just to regulate. So that's an issue. We're looking to speak with the new chairman about hopefully this summer as his staff gets built out and just get a better sense of where they're going. But beyond legislative regulatory, next week we'll be in New York City for our annual tech event. So that's always an exciting event on Thursday, May 15th, excuse me, at the Union League Club in New York City. So hope to see a lot of the listeners there. But I got to be frank with you, Kyle, this legislative marathon is, it's taken a lot of my time.
Kyle Glazier (15:43):
Yes, I'm certain it has and that's why we appreciate you making the time to speak with us and keep us informed. Absolutely. It was a pleasure,
Brett Bolton (15:51):
Kyle, as
Kyle Glazier (15:52):
Always. Thank you. And thank you to all of you for joining us here on the Bond Buyer Podcast. Don't forget to rate us, review us and [email protected] buyer.com/subscribe from the bond buyer. I'm Kyle Leisure, and thank you for listening.
(15:52):