Reform is needed for several reasons. When the expiration date for MRBs and IDBs approached, however, Congress extended state and local authority, but failed to restore the volume cap. In 1993, MRB and IDB became permanent, with no restoration of the pre-1988 volume caps. Inflation has significantly eroded the value of the volume cap. Current volume caps impose significant restraints on state and local government's ability to address pressing policy issues such as deteriorating infrastructure and a lack of affordable housing.
Many states regularly exhaust all of their volume cap allocation.
Others do not use it all, but are nonetheless restricted from pursuing large investment projects- too much cap allocation would be consumed. Congress could increase the financial flexibility of states and localities by providing a one-time increase in the cap. Congress could also index the volume caps annually for inflation to ensure that borrowing capacities of states do not erode over time. Finally, Congress may wish to permit certain types of projects that have a pervasive public nature to be financed with tax-exempt securities outside of state volume caps, regardless of the level of private participation involved. In essence, states and localities should be free to decide whether to build and manage publicly oriented projects themselves or to arrange with private entities to do so without losing the borrowing cost advantages of tax-exempt financing.