Impending Tax Cut Bill Poses Challenges for Financing Critical Community Services

CDFA Conference brought hope and frustration — and a determination to find new ways to finance outcomes

By Eric Letsinger, Founder & CEO of Quantified Ventures

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Last week, I had the great pleasure of speaking at this year’s Council of Development Finance Agency’s conference in Atlanta to share our firm’s progress and challenges associated with leveraging outcomes-based financing structures to spur smart infrastructure spending in the U.S.

In attendance were strong, national leaders who have, over the past handful of decades, successfully navigated through a sea of regulatory complexities to structure viable and sustainable approaches to financing affordable housing, neighborhood revitalization efforts, and community redevelopment initiatives. Listening to senior leaders from organizations like Calvert Impact CapitalPublic Financial ManagementICF, and Community Reinvestment Fund USA discuss their impact on vulnerable communities is always a real treat for me. Learning how they design, implement, and replicate their innovations is mind-boggling.

But…the conference timing was rough. Instead of talking about the newest and most creative approaches these innovators are advancing in the field, the majority of the sidebar conversations were about plans to minimize the damage from the Trump Administration’s proposed $1 trillion+ tax cuts. The House version, which passed on that Thursday, removes the tax exemption from investments in private activity bonds, which fund airports, water facilities, and roads.

Attendees seemed to be in agreement that changes like this will make financing tens of billions of dollars worth of public works each year significantly more expensive. And, like the Senate’s plan, it would do away with advanced refundings, a technique municipalities frequently use to refinance their debt when interest rates fall. Yet taking advanced refundings away will contributing only a small savings (<$20B over 10 years) to the overall “tax cut” goal. This leaves taxpayers and ratepayers holding the bag.

What was crushing to realize over the course of these couple of days in Atlanta was not so much the staggering details about the impact of these proposed policy changes on average Americans, but rather the mere fact that I couldn’t find one person at this conference who had been contacted or consulted for their advice by our national political leaders who are crafting these cuts. Not one. That’s unnerving. These are the pros, the elite, the best…the ones that know stuff.

So, aside from all of the political work that needs to be done, how can these projects get the financial support they need? This is an area where impact investing can play a role. From where I sit, there is a lot of money sitting on the sidelines — “frustrated capital” seeking transactions. The perceived lack of deals is clouded by several other obstacles, including a risk-return disconnect, lack of common terminology, deal structures that don’t seem to fit, and inability to connect financing directly to outcomes.

I believe that these are the areas we need to tackle — soon, and with fresh eyes. We can’t afford for the impressive solutions that the attendees at the CDFA are bringing to the table to be lost in the face of these cuts. Let’s adopt a “nothing is impossible” attitude and open ourselves to risk and to learning. In my experience, the journey to structure a never-done-before deal is often more informative and valuable than the deal itself.

Have an idea to share on financing outcomes in light of the new tax plan’s challenges? Join the conversation at @QuantifiedVTS or contact us at info@quantifiedventures.com.

Eric Letsinger