Democrats rout Republicans; no muni champions lost in House

The historic blue wave predicted by the polls swept over the country Tuesday as Democrats won control of the 120th Congress by large margins and flipped governor seats in several Republican states.

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Democrats took seven Republican Senate seats to gain a 54 to 44 majority as of Wednesday morning with two races, in Alaska and Mississippi, still too close to call. Democrats were estimated to have won 250 seats in the House, well over the 218 seats needed for a majority, as of Wednesday morning, with several races yet to be called. With President Trump set to remain in the White House for two more years, Democrat control of Congress may lead to gridlock.

Municipal market lobbyists used the words “staggering” and “shocking” to describe the blue stampede.

“For the House, we didn’t lose any champions. In fact, we gained a few,” said Emily Brock, federal liaison of the Government Finance Officers Association. Brock pointed to Paige Cognetti, former Scranton, Pennsylvania mayor who beat the Republican incumbent to flip the state’s 8th district. Cognetti was the United States Conference of Mayors’ board member on the Public Finance Network, Brock said.

Party leadership will meet this month to discuss committee leaders, but won’t formally vote until January when new members take their seats.

“For public finance, there  will be more sympathy and interest in the leadership and in the tax-writing committees for infrastructure and social programs that can be backed by bonds,” said Chuck Samuels, a member at Mintz and counsel to the National Association of Health & Educational Facilities Finance Authorities. 

“Projects like returning [tax-exempt] advance funding and liberalizing small borrower bank qualified bonds may be viable again,” Samuels said. “But let’s also not forget previous Democratic congresses that pushed tax credit bonds, infrastructure banks,  20% tax-exempt interest limits, etc.”

Many expect Rep. Richie Neal, D-Mass., to re-take the gavel of the powerful House Ways and Means Committee, which shapes tax policy. Considered a supporter of the municipal bond market, Neal served as Ways and Means chair from 2019-2023 before the Republicans took control of the House and voted in Rep. Jason Smith, R-Mo. 

There’s also a chance the new chair could be Rep. Mike Thompson, D-Calif., ranking member of the subcommittee on tax and a senior member of the health subcommittee, where he has defended tax-exempt hospitals that have come under Republican scrutiny in the current Congress.

Rep. Maxine Waters, D-Calif., is considered the frontrunner to chair the House Financial Services Committee, another panel that’s important for the muni market, but the 88-year-old will likely face a challenge from Illinois Democratic Rep. Sean Casten.

Rep. Rick Larsen, D-Wash., a moderate Democrat, is set to chair the House Transportation and Infrastructure Committee as the panel undertakes the surface transportation reauthorization bill.

In the Senate the “shift is massive for us,” Brock said. New faces will be representing Michigan, North Carolina, Kansas, Texas, Maine, among others.

Sen. Ron Wyden, D-Ore., could take the helm of the Senate Finance Committee. Wyden helped create the Build America Bonds direct-pay bond program, and lobbyists have said a similar proposal may pop up if Democrats control both chambers.

Wyden is also a major critic of data centers and has floated a tax package that would levy an excise tax on data center operators and remove “unnecessary” tax breaks for the facilities.

Incoming House Speaker Hakim Jeffries, D-NY, said that affordability, not revenge, would be Democrats’ priority next year, but it remains to be seen how much they pursue policy changes over investigations of the Trump administration.

“The major priority for all committees will be oversight, but we’ll have to see how much they’ll be willing to deliver on tax and regulation,” said Brett Bolton, managing director, federal legislative affairs at the Bond Market Association.

“What lessons if any will they take from 2018 when they focused so much on oversight and not much policy work?”

A priority now for muni lobbyists is the surface transportation bill, which will include a tax title that could act as a vehicle for expanded private activity bond cap for transportation projects, lifting the bank-qualified small issuer cap and restoring advance refunding.

“Our attention now turns to the surface transportation bill — that’s the next opportunity,” Bolton said. “Then in January we’ll hit the hill to educate the new members,” he said. “With so many new members, education is going to play a major role.”

With legislative control in Democrats’ hands, the action may turn more toward regulation.

Sen. Susan Collins, R-Maine, Senate Appropriations Committee chair, who lost her race, has led the opposition to the proposed OMB federal grant rule, which cities, states, and other bond-issuing entities warn would pressure their underlying credit.

Collins helped pause the rule until Dec. 11 as part of the current continuing resolution. She will still be in Congress when the Dec. 11 deadline comes, but it’s unclear what’s next for the rule. The likely next chair of the House Appropriations Committee, Rep. Rosa DeLauro, D-Conn., is also pushing hard against the rule.

Another regulatory item, a proposed Trump administration rule that would strip the tax-exempt status from private schools that are deemed to have DEI policies, may see Democratic pushback.

“I suspect there will be active legislative interest to block the IRS/Treasury proposal on private schools’ so-called discriminatory actions,” Samuels said. “It would be great to think that there can be a revisitation of the now obsolete but still threatening mandates in the Federal  Data Transparency Act.”

The administration’s reaction to the rout remains to be seen. Trump late Tuesday told the New York Times that he was prepared to work with Democrats, saying, “We’ll probably work something out.” He told Fox News would veto the legislation that gets passed.

“We know President Trump is an investor in municipal bonds and we will continue to focus the very best outcomes for issuers and the market in all of our priorities,” Brock said.