LOCAL Infrastructure Act Restores Key Refinancing Tool for Cities, Cutting Borrowing Costs Immediately

The new LOCAL Infrastructure Act (formally the Lifting Our Communities through Advance Liquidity for Infrastructure Act) is short, punchy, and delivers one immediate change: it brings back a financial tool called “advance refunding bonds.” This entire Act is dedicated to wiping out a specific section of the 2017 Tax Cuts and Jobs Act that banned these bonds. By repealing that ban, the bill immediately restores the ability of state and local governments to refinance their existing municipal bonds to take advantage of lower interest rates, much like a homeowner refinancing a mortgage.

The Municipal Mortgage Refinance Button

Think of it this way: when a city or state builds a new bridge, school, or water treatment plant, they often borrow money by issuing municipal bonds. If interest rates drop a few years later, they want to refinance that debt to save money, just like you would with your house. Before 2017, they could use an advance refunding bond to lock in the new, lower rate immediately, even if the old bond wasn't technically ready to be paid off yet. The 2017 tax law took that option away, forcing governments to wait until the original bond's call date, potentially missing out on savings.

This new Act, effective the day it’s signed, restores the old rules (Sec. 2). What does this mean for you? When a city saves money on debt service—the payments on their loans—that money doesn't just disappear. It can be redirected to other public services, like filling potholes, upgrading libraries, or avoiding tax hikes. For example, a city might save millions on a water treatment plant bond, freeing up those funds to hire more sanitation workers or keep property tax rates stable. This is a big win for public finance managers who need flexibility to manage massive infrastructure debts.

Who Benefits and Who Pays?

This change primarily benefits state and local governments and, by extension, the taxpayers who fund their projects. Lower borrowing costs mean more efficient use of public funds. It also benefits the municipal bond market, as it restores a common, useful tool for financial institutions that structure these deals.

While this is widely seen as a positive move for public finance, the 2017 ban was originally implemented to increase federal tax revenue. Advance refunding bonds are tax-exempt, meaning the interest earned by the bondholders isn't taxed by the federal government. Restoring them means the federal Treasury will forgo some tax revenue it had been collecting since 2017. However, the argument from state and local governments has always been that the savings they realize locally outweigh the lost federal revenue, especially since those local savings can be reinvested into the community. In short, this bill puts the financial flexibility back in the hands of your local town hall.