How muni supporters in House, Senate may fare in midterms

Al Drago/Bloomberg

The midterm elections that promise to reshape Congress include a handful of competitive races for lawmakers from both chambers who are considered municipal market champions, although most are expected to win their elections.

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The muni market already suffered a loss with the March primary loss of Texas Republican Sen. John Cornyn, who lost to Texas Attorney General Ken Paxton. An influential supporter of tax-exempt private activity bonds, Cornyn led the charge to save the financing tool during the 2017 Tax Cuts and Jobs Act, and held that position during last year’s tense reconciliation negotiations.

Paxton, who’s locked in a tight race with Democrat James Talarico, was a top defender of the Texas 2021 anti-ESG laws and as attorney general put several top bond underwriter firms under review for potential violations. The law eventually sparked the exit of several top underwriters from the state.

While Democrats are widely expected to take the House, the Senate’s fate remains uncertain as key races considered too close to call will determine who controls the chamber. Maine is one of those races, where Republican Sen. Susan Collins, chair of the Appropriations Committee, faces Democrat Troy Jackson.

From the muni market perspective, Collins has emerged as a top challenger of an Office of Management and Budget proposed rule change that would revamp federal grant awards and terminations. Bond issuers are strongly opposed, and Moody’s Investors Service has warned the proposal carries credit implications.

Collins was instrumental in inserting a provision that blocked implementation of the rule until Dec. 11 as part of a larger government funding bill that also expires Dec. 11. Even if she loses her election, Collins will still be in the Senate on Dec. 11 and could support another pause, said a lobbyist following the issue.

Connecticut Democrat Rep. Rosa DeLauro, who may return as House Appropriations chair if the Democrats take control, has also fought hard against the rule.

The Ohio Senate seat is another battleground tossup, where former Sen. Sherrod Brown, a Democrat and former chair of the powerful Senate Banking Committee, faces Republican Sen. Jon Husted. While in office, Brown pushed for infrastructure transit spending. while Husted has pushed for trimming red tape to accelerate infrastructure projects.

Republican Rep. Andy Barr, who is a member of the House Municipal Finance Caucus, is the favorite to win an open Senate seat in Kentucky.

Barr was one of several House members who signed a letter last year that urged the House Ways and Means Committee to preserve the municipal bond tax exemption as tax-writing work began on reconciliation legislation.

The letter — which Government Finance Officers Association lobbyist Emily Brock called “an incredible show of support at a pivotal time” — was authored by House Financial Services Chair Rep. French Hill, R-Ark. Hill is favored to win his race with opponent Chris Jones, although polls show the race is closer than expected and the Cook Political Report recently moved it from Solid Republican to Likely Republican.

On the House side, long-time muni champion and Municipal Finance Caucus co-chair Rep. Terri Sewell, D-Ala., is expected to win her race despite recent Republican-led redistricting — but she may face tougher elections starting in 2028, said a second lobbyist who is tracking the race.

Sewell, a former bond lawyer, has repeatedly introduced bills that advance muni market priorities, such as tax-exempt advance refunding and lifting the cap for small borrower bank-qualified bonds. In a July hearing on tax-exempt stadium bonds, however, Sewell expressed concerns about using tax-exempt bonds to finance professional sports stadium.

Stadium bonds, disliked by both sides of the aisle, are likely to return as an issue in the next Congress. The authors of a bill eliminating the tool — Rep. Don Beyer, D-Va., and Rep. Glenn Grothman, R-Wis., — are both expected to win on Nov. 3.

The Republican co-chair of the House Municipal Finance Caucus, Indiana Rep. Rudy Yakim, who sits on the powerful House Ways and Means Committee and emerged as a major muni champion during last year’s reconciliation negotiations, is also expected to win.

Rep. David Kustoff, R-Tenn., who has twice introduced bills restoring tax-exempt advance refunding, also remains on track for another term.

After the election, groups like National League of Cities and National Association of Counties will begin digging through the winners to see who has local and state government links and therefore a better understanding of municipal bonds, lobbyists said.