January 11, 2019
Tax-Exempt Bond Update: 2018 Year in Review
Tax Reform Hangover
The 2018 municipal bond market was shadowed by the brief but dramatic roller coaster ride that culminated in the enactment of the Tax Cuts and Jobs Act (“Tax Act”) in December 2017. Early versions of the Tax Act unpleasantly surprised market participants by proposing to eliminate the tax-exemption for all private activity bonds, advance refunding bonds and certain stadium financings. The uncertainty created by the proposals led many issuers to rush to market at the end of 2017. In the end, after intense efforts by the municipal bond community and others, the final Tax Act preserved the tax-exemption for private activity bonds and stadium bonds but repealed the tax-exemption for advance refunding bonds. This repeal, together with the rush of issuance at the end of 2017, contributed to a downturn in the tax-exempt bond market that persisted throughout 2018.