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President-elect Donald Trump’s return to the White House has placed public finance leaders on the defensive, as tax policy changes may impact the industry’s investor base, increase borrowing costs and stymie certain infrastructure finance opportunities. Trying to the past offers some insight into how the approaching months may play out.

Republicans last controlled all three branches of the federal government in 2016, which led to the enactment of the Tax Cuts and Jobs Act the next 12 months. The TCJA axed tax-exempt advance refundings and the state and native tax deduction (SALT). It also nearly killed tax-exempt private-activity bonds.

Matt Fabian, partner at Municipal Markets Analytics Inc., told The Bond Buyer’s Caitlin Devitt that the return to Republican control has once more given rise to significant challenges to the tax exemption.

“The muni lobby has improved the information that they’ve, they’ve improved the arguments for preserving the [tax] exemption and I believe they have been preparing for this potential scenario for months,” Fabian said. “So if [the tax exemption] could be defended, they’ll do it.”

Industry groups just like the Bond Dealers of America are increasing their focus  on several legislative policies aimed toward strengthening the muni market.

“Congress has been afforded the possibility to reevaluate policy decisions made in 2017, and we urge them to further embolden Americas’ infrastructure by promoting municipal bonds, reinstating tax-exempt advance refundings, raising the bank-qualified limit, and exploring options to further utilize and expand private activity bonds,” Brett Bolton, senior vp on the Bond Dealers of America, said in an interview with The Bond Buyer’s Scott Sowers.

Read more: A wary municipal market ponders post-election threats

Market leaders are in search of silver linings within the meantime. 

In late November, Trump announced Scott Bessent as his nominee for Treasury Secretary. Bessent, founding father of the Key Square Group hedge fund and longtime collaborator of financier George Soros, has muni and banking experts alike hopeful — and wary — of his probabilities for achievement.

“Scott Bessent is an awesome pick because he knows markets,” Chris Iacovella, president and CEO of the American Securities Association, said in an interview with The Bond Buyer’s Scott Sowers. “He’ll vigorously implement the president’s agenda, and he knows methods to confer with the bond market. … All of those skills will probably be required to be the secretary of U.S. Treasury at this moment.”

Read on to dive into expert predictions of Trump’s impact on the markets and the way leaders are preparing for changes in every direction.

Protection of tax-exempt bonds is top issue for public finance leaders

As public finance leaders proceed to navigate uncertain waters within the markets, professionals are mindful of protecting the tax exemption and further promoting municipal bonds.

The Tax Cuts and Jobs Act of 2017 and the various provisions included in it which might be set to run out later this 12 months mean bond advocates are once more doubling down on “preserving and protecting all tax-exempt bonds during any attempt at tax reform,” Toby Rittner, president and CEO of the Council of Development Finance Agencies, said in an interview with The Bond Buyer’s Scott Sowers.

Industry associations just like the Bond Dealers of America and the CDFA are also pushing to enact changes within the Farm Bill and the strength of the State Small Business Credit Initiative to raised support developing rural communities.

Read more: Public finance leaders brace for Trump transition

Win McNamee/Photographer: Win McNamee/Getty

Does a Trump return mean a doubled SALT cap?

Industry experts are cautiously optimistic that comments President-elect Trump made through the campaign will yield positive changes for the state and native tax deduction.

“Whether or not the cap is totally lifted, I’m skeptical about that, but at a minimum I believe doubling it for married filing joint taxpayers is likely to be a logical approach,” Mary Burke Baker, governmental affairs counsel for K&L Gates, said during a post-election recap discussion last month. “President-elect Trump campaigned on that, and as we all know, it is a pivotal issue for a number of Republicans in high-tax states, not to say for Democrats.”

Experts also opined on the longer term of agencies just like the Department of Transportation, and the way the impact of industry figures similar to Tesla CEO Elon Musk could shape Trump’s view of future transportation priorities.

Read more: Trump win may mean doubling SALT cap

Municipal bonds see widespread support from California voters

Following the success of two noteworthy state bond measures last month, each approving greater than $10 billion of faculty and climate-change-mitigation bonds respectively, voters are poised to do the identical for greater than $40 billion of local school general obligation bonds.

Last month’s ballot featured 266 school bond measures looking for to clear the 55% voter approval hurdle, a record variety of local bond measures within the state’s history.

Proposition 2, Bonds for Public School and College Facilities, garnered support from 58.7% of voters, while Proposition 4, Bonds for Water, Wildfire and Climate Risks, received 59.8% in affirmative support, in accordance with the Secretary of State’s office. Final numbers are expected to be available on Dec. 13 as ballot tallies proceed.

Read more: California voters say ‘yes’ to greater than $40 billion of local school bonds

Cutting IRS funding could hamper bond auditing

Industry experts say the tug-of-war between Republicans and the Internal Revenue Service over the agency’s budget might affect the variety of audits posed on municipal issuers.

The IRS’ original $80 billion boost from the Inflation Reduction Act of 2022 has already been knocked down by $20 billion through last 12 months’s Fiscal Responsibility Act, which lifted the nation’s $34.1 trillion debt ceiling until Jan. 1, 2025.

Wealthy Moore, a partner at Orrick, highlighted the correlation between the dimensions of the IRS’ budget and the variety of audits that could be conducted.

“The next budget means more agents and more agents mean more examinations,” Moore said in an interview with The Bond Buyer’s Scott Sowers. “It also provides the agents with more resources to conduct the examination, including undertaking a site visit of the bond-financed project.” 

Read more: Cut in IRS funding may limit bond audits

Sean Rayford/Photographer: Sean Rayford/Getty

Columbus-area tax measure backing bonds gets green light from voters

Greater than 56% of voters approved a sales tax proposal for the Central Ohio Transit Authority service area last month, increasing the 0.5% tax to 1% and bringing the levy as much as 8% from 7.5%.

Erin Delffs, chief financial officer at COTA, said in an interview with The Bond Buyer that the authority will plan to issue as much as $500 million of sales tax revenue bonds between 2025 and 2050 as a part of a framework for enhancing the transit network in Franklin County. The primary series of bonds is predicted to be issued within the third or fourth quarter of next 12 months.

“It is a pivotal moment for COTA and all the Central Ohio region,” Monica Téllez-Fowler, president and CEO of COTA, said in a press release. “With the passage of Issue 47, we’re empowered to make significant investments in our transit system that can improve access, equity, and sustainability for everybody.”

Read more: Voters approve Columbus-area transit tax that can back bonds