Jobs and Growth Tax Relief Reconciliation Tax Act, 2003

JOBS AND GROWTH TAX RELIEF RECONCILIATION TAX ACT, 2003

ADVANCE REFUNDING

    Mr. SMITH. Mr. President, I realize it cannot be considered as part of the pending legislation, but I ask Senator GRASSLEY to consider including a bill I have introduced, the Municipal Debt Refinancing Act, in future tax legislation. The Municipal Debt Refinancing Act would permit an additional advance refunding for bonds used to finance governmental facilities as part of the tax legislation to be considered by the Finance Committee. The Municipal Debt Refinancing Act would permit fiscally strapped State and local governments to take advantage of the current low market interest rates by refinancing their outstanding bonds an additional time. This proposal could translate into millions of dollars in savings for states and localities across the country. By requiring bond issuers to use the additional advance refunding authority within the next 2 years, the legislation also guarantees the maximum near-term benefit.

    Individuals and corporations who borrow money are free to refinance these debts whenever the opportunity to borrow at a lower rate arises. State and local governments who issue tax-exempt bonds generally do not share this freedom. States and localities are permitted to "advance refund" outstanding bond issues only one time, or else they must wait until a pre-set date when interest rates have risen and the opportunity to garner savings has passed. But cost-saving refinancing opportunities typically occur only when market interest rates fall below the rate on the original bond issue. Issuers cannot effectively predict when this will happen. By providing an additional advance funding, your legislation would give issuers more flexibility to react to interest rate changes and manage their debt. This legislation would mean significant savings for State and local governments—many of which are in the midst of their worst fiscal crisis in memory—without raising taxes or increasing spending.

    Mr. GRASSLEY. I appreciate the Senator's work in this important area. It is true that permitting States and localities to advance refund governmental bonds one additional time would provide important financial flexibility at a critical time. State and local governments across the country are facing unprecedented fiscal crisis. Being able to refinance debt at a lower rate will clearly translate into important savings for our Nation's cities, counties and states.

    I assure the Senator this proposal will receive serious and thorough consideration by the Finance Committee, which I chair, as we address tax legislation in the future.