March 22, 2018
A Call To Service in Infrastructure
BY: Zara Wallace
If you are like me, you went to law school to make a difference in the lives of ordinary individuals. Whether you were inspired by the possibility of representing the indigent, finding justice for the aggrieved or serving your country in the JAG Corp, public service was the impetus that initially drew you to the law. However, like all things, life happens. Professional interests evolve, career paths diverge, and those noble ideals that drew you to the law remain unfulfilled. In their place lingers a longing desire, a feeling that somehow you have forsaken a purer version of yourself, one less tainted by the daily grind of legal practice.
Besides the stress of billable hours, an unfulfilled desire for public service is one of the most common sentiments I hear among lawyers in private practice. Although many attorneys enjoy the intricacies of their practice areas, or are intellectually and professionally fulfilled by their work, there remains a discontentment because they do not feel they are making a difference in their fellow citizens’ lives.
Fortunately, I do not share this concern as a practitioner of public finance law. As a public finance lawyer, I am immersed in complex transactional matters, but I also see first-hand on a daily basis, the difference my practice can make in the lives of my fellow citizens. Whether it is financing low income housing developments, schools or hospitals, the benefit to the public is ever apparent. Public finance and, in particular, a tax-exempt municipal bonds practice, is unique among business law practice areas precisely because it combines the complexity of a sophisticated subject matter with the altruistic aim of benefiting the public. This has the by-product of creating a wholly rewarding experience for the practitioner. For those who practice in public finance, the concern is less about fulfilling an unmet desire for service, and more about ensuring that the public policies that enable this practice group are retained and expanded.
Tax-exempt bonds issued by state and local governments, or an authority created by either of those entities, enable the financing of major infrastructure projects at lower costs than market-rate financing. Infrastructure projects can be financed at lower costs because investors are willing to accept lower interest rates on tax-exempt bonds. This is because the interest earned on these bonds is exempt from gross income in accordance with Section 103 of the Internal Revenue Code of 1986 (the “Code”). Whether borrowing directly by issuing bonds to finance their own infrastructure needs, or by issuing bonds and lending the proceeds to non-profit organizations to finance projects that benefit the public (private activity bonds), municipalities are afforded a robust source of private capital to fund public projects. The Code essentially incentivizes private investors to finance needed roads, bridges, schools, hospitals, and other important public facilities by giving them a tax break on the interest earned on their bonds.
Leveraging the tax code to promote the common good is not unique to municipal bonds, as a similar approach is used in the Low Income Housing Tax Credit (LIHTC) program. The LIHTC program incentivizes private investors to finance the development of affordable housing for low income individuals by providing a tax credit against the federal income tax liability of the investors. The LIHTC program has been highly successful, financing approximately 3 million apartments since its inception, while at the same time creating an estimated 140,000 jobs and generating 1.5 billion in state and local tax revenues annually.
Although the benefits of these programs to average citizens cannot be understated, it is often difficult for the public to draw the connection. After all, the immediate benefits accrue to private investors, and are only felt by the average citizen many years after. Even more consequential, finance is just not a sexy topic. Evident by the fact that the public works progressivism of the 20th century has been replaced by the social issues activism of today and, it seems, the issues of infrastructure that are crucially important to people of diverse backgrounds in our society are ignored in favor of more fiery topics of debate. For while everyone enjoys driving on new roads, and many appreciate the construction of a new hospital in their district, few people are ever concerned with the financing mechanism that make those projects possible. Public finance practitioners like myself have a challenge highlighting the connection between the tax code and the major infrastructure projects from which we all benefit. This task is especially important as our elected representatives debate the elimination of private activity bonds and advance refunding bonds (a refinancing instrument) as a part of tax reform. These changes fundamentally alter the nature of the tax-exempt bond market by leaving less capital to fund critically important public infrastructure projects. That is precisely why it is so important for a diverse coalition of citizens to appreciate the public benefits of these various tax-exempt programs in much the same way as we appreciate the benefits of “public interest” jobs.
Undoubtedly, part of the solution will be changing the way in which we think of public service, expanding the definition to include practice areas that benefit the public writ large, rather than on a case-by-case basis. If we reframe the debate surrounding public service, the average citizen will realize the benefits of these programs, ensuring their survival and expansion. Maybe an expanded view of public service might even convince some of our colleagues to reclaim that part of themselves they thought long lost, by transitioning to a public finance practice.