Summary of S 3941: Federal Home Loan Bank Guaranteed Bonds Tax-Exempt Status Bill

Bill Overview

This bill, titled "A bill to amend the Internal Revenue Code of 1986 to restore treatment of State and local bonds which are guaranteed by a Federal home loan bank as not federally guaranteed for purposes of determining their tax-exempt status," was introduced in the Senate on February 26, 2026.

Purpose and Intent

The main purpose of this bill is to amend the Internal Revenue Code to restore the tax-exempt status of state and local bonds that are guaranteed by a Federal Home Loan Bank. Prior to a change in the tax code, these types of bonds were not considered federally guaranteed and thus qualified for tax-exempt status. This bill seeks to reinstate that previous treatment.

Key Provisions

The key provision of the bill is:

• Amending the Internal Revenue Code to specify that state and local bonds guaranteed by a Federal Home Loan Bank are not considered "federally guaranteed" for the purposes of determining their tax-exempt status.

This would effectively restore the tax-exempt status for these types of bonds, which was previously in place before a change in the tax code.

Affected Parties and Impact

The primary parties affected by this bill would be:

• State and local governments that issue bonds
• Federal Home Loan Banks that provide guarantees for state/local bonds
• Investors in state and local bonds guaranteed by Federal Home Loan Banks

Restoring the tax-exempt status of these bonds could make them more attractive investments and potentially lower borrowing costs for state and local governments that utilize this financing method.

Procedural and Timeline Details

The bill was introduced in the Senate on February 26, 2026 and has been referred to the Committee on Finance for further consideration. No other legislative actions have been recorded at this time.