On the political front, there will be several other topics of interest to the muni market in 2010. Clearly, the timing and magnitude of tax increases will be an important factor, with the Bush tax cuts scheduled to expire. So, too, will several topics that are important to state and local governments generally and the muni market specifically.
Below are a few of the many issues that MainLine will actively monitor in 2010:
- FEDERAL STIMULUS – Any extension of direct cash support for state and local governments beyond the Stimulus Package, whose main effects sunset at the end of this year. Given the massive budgetary problems of state and local governments and their potential consequences for the level of unemployment, there will be strong pressure to continue to some level and form of support. An extension of stimulus that includes support for state and local governments would serve as a logical option.
- BUILD AMERICA PROGRAM – We expect the Build America Bond (BABs) program to be renewed beyond 2010, but a key question is whether the 35% subsidy rate from the Federal Government is maintained or lowered. If the subsidy rate is lowered, then the amount of BABs, which are estimated to come in at $100 billion for this year, would probably decline. The timing of any cut in the subsidy rate is also key, because an announcement that the rate is going to be cut might cause issuers to rush BABS to market before the rate decline occurs.
- ALTERNATIVE MINIMUM TAX – Several other supports for the muni market are also scheduled to sunset on 12/31, including the exemption of private activity bonds from the Alternative Minimum Tax (AMT). Congress had previously exempted all bonds issued during 2009 and 2010 from the AMT under the American Recovery and Reinvestment Act of 2009. Although the exemption is slated to run through the end of 2010, Congress could include a permanent extension in the bill it will write later this year to extend a number of expiring tax breaks.
Coming off a tumultuous couple of years in the financial markets, change will be commonplace as the government implements strategies to help the marketplace regain solid footing. Consequently, MainLine will continue to stay on top of the pressing issues and monitor their ramifications in order to both preserve wealth and to identify new areas of opportunity when change inevitably occurs.