5.7. ERMUSR 03-13-2013 - Laserfiche WebLink

Home Browse Search

flIMINI Lq :nIIMvSig Position Statement • Minnesota Municipal Utilities Association Tax Exempt Municipal Bonds Background , Municipal bonds are debt obligations ;It "f `.x issued by states, cities, counties and other � I; . governmental entities, which finance many ./ projects for the public good including schools, bridges, hospitals, water and wastewater 111) treatment plants, and publicly-owned electric 1 I\ utility facilities. These bonds are desirable to t , investors because the interest investors earn from them is not subject to federal income ri,V- i • t tax. 1 (.. The federal tax exemption on municipal _. p bond interest has been in lace since the l 1 enactment of the very first federal tax 'n'""r...°° — code in 1913. This has allowed state and local governments to save, on average, an air quality regulations. Without access to the estimated two percentage points on their borrowing savings traditionally available through tax-exempt to finance investment in public infrastructure, financing, project costs will be even higher. These which translates into a 25 percent savings in added costs will be passed on to consumers in the infrastructure costs over time. Over the past few form of higher taxes or utility bills. decades, tax-exempt financing has generated trillions of dollars of investment in vital public The increasing cost of building water and infrastructure, saving state and local governments wastewater treatment facilities offers an hundreds of billions of dollars in interest costs. important example of the continuing need for tax exempt financing. For many years after new Over the last century, state and local governments environmental standards for water and wastewater have been willing partners (together with the were established in the 1970's, federal and state federal government) in building the fabric of daily grants took care of up to 90% of the cost of building American life—power plants, transmission lines, treatment facilities to meet the new requirements. roads, bridges, elementary schools, universities, In the past few years, as the cost of these facilities airports, docks, water systems, housing, rail and has soared to ever greater levels, state and federal hospitals, all of which are financed with tax-exempt grants to fund these projects have shrunk to almost bonds. nothing. In communities where new facilities will be needed, the financial hardship caused by the As we look ahead to the financing needs of state loss or reduction of tax exempt financing would be and local governments in the relatively near particularly acute. term, access to tax-exempt financing may be Simpson-Bowles Begins Challenge more important than ever. Roads, bridges, and to Tax Exemption other basic infrastructure must be repaired or replaced at today's higher costs. Many municipal The most recent discussion about the value of the utilities and municipal power agencies will have tax exemption began as part of the larger effort to make major investments to upgrade or replace to reform the tax code and reduce the federal electric generating facilities in order to meet new budget deficit. In 2010, the Simpson-Bowles Report 4/ 2013 Federal Position Statements