Bonds

Republicans have finalized their roster of subcommittee chairs for the powerful House Ways and Means committee, one of the municipal market’s key panels.

Pennsylvania Republican Rep. Mike Kelly will lead the newly-renamed tax subcommittee, formerly known as the Select Revenue Measures subcommittee, which writes tax policy and oversees tax collections. The position puts him in the spotlight for any tax legislation that would affect the municipal bond market.

Rep. Jason Smith, D-Mo., will lead the committee and Florida Rep. Vern Buchanan will serve as vice chair and oversee the Health Committee. Smith on Jan. 11 announced a slew of new GOP members that would join the committee, for a total of 25 Republican members, with Democrats holding 18 positions.

Kelly, who has been on the Ways and Means Committee since 2013, was the ranking member for the tax subcommittee during the 117th Congress under Democrat control. He’s also served as ranking member of the oversight subcommittee.

Kelly has a local government background, having served on the Butler, Pennsylvania City Council and on the board of the Redevelopment Authority of Butler County.

“Over the next two years, I plan to closely examine the IRS and to ensure it works as the service-driven agency it is intended to be,” Kelly said in a Jan. 26 statement, referring to the $80 billion in new IRS funding allocated by the Inflation Reduction Act. “I will continue our fight to make sure taxpayer money is spent effectively and efficiently.”

Kelly has supported muni-related legislation in the past, noted Brett Bolton, Vice President of Federal Legislative and Regulatory Policy at the Bond Dealers of America. In 2017 and again in 2019, Kelly introduced bipartisan legislation that would allow state and local governments to issue up to $5 billion in private activity bonds to finance the construction and upkeep of certain publicly owned buildings.

“Adding subcommittee chairs such as Rep. Mike Kelly, who in previous Congresses introduced muni-focused legislation, will only further strengthen muni support on the committee,” Bolton said. “We are excited to see what unfolds over the coming months as we not only work with our partners on the Hill to have key legislation introduced, but on having growing support within key committees.”

All tax-related legislation that moves through Congress must originate in the powerful Ways and Means Committee, making the committee a must-watch for muni market participants.

Traditionally, the chair has kept tight control over the committee, diluting the authority of the vice chair or subcommittee chairs, noted Charles Samuels of Mintz Levin, counsel to the National Association of Health & Educational Facilities Finance Authorities.

And under former Speaker Nancy Pelosi, many of the high-profile bills were crafted at the House leadership level, limiting the input of committees like Ways and Means, Samuels said.

But that dynamic may shift in the 118th Congress in light of House Speaker Kevin McCarthy’s tenuous hold on the slim Republican majority.

“Given the promises the speaker has made to the rank and file, that might mean that the committees and subcommittees would be more important than they have been for many years. I suspect that we will see more activity at the lower levels,” Samuels said. “I don’t know how the personality and the politics are going to play out here, though Buchanan and Kelly are very well respected and they’re going to have major impacts on tax legislation.”

Kelly played a lead role in crafting the 2017 Tax Cuts and Jobs Act, which included a $10,000 cap on the deductibility of state and local taxes, an issue that’s important to high-tax muni issuers like New York and California, and to muni investors who trade paper from those states.

Without any action, the SALT cap will sunset at the end of 2025. A bill to extend the deduction would likely start in the tax subcommittee under Kelly’s leadership. House Republicans last year introduced a bill to make TCJA provisions permanent, which had strong GOP support. A group of GOP senators also introduced a bill last year that would extend the cap for three years.  

New GOP members joining the tax subcommittee include Lloyd Smucker of Pennsylvania, Beth Van Buyne of Texas, Randy Feenstra of Iowa and Nicole Malliotakis of New York, according to CQ.

Malliotakis is a member of the bipartisan SALT Caucus, which aims to overturn the cap.

Democrats also finalized their top positions on Ways and Means, but as the minority party they will likely have little ability to impact the agenda under ranking member Richard Neal, D-Mass., who led the committee during the last Congress.

The new subcommittee ranking members include Texas’ Lloyd Doggett on the health panel, Connecticut’s John Larson on the social security subcommittee, Bill Pascrell Jr. of New Jersey on oversight, California’s Mike Thompson on tax, Earl Blumenauer of Oregon on trade, and Danny K. Davis on the work and welfare panel.

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