5.3. ERMUSR 02-12-2013 - Laserfiche WebLink

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�1 Elk River t; Municipal Utilities UTILITIES COMMISSION MEETING TO: FROM: Elk River Municipal Utilities Commission Troy Adams, P.E. —General Manager John Dietz—Chair Daryl Thompson—Vice Chair Al Nadeau—Trustee MEETING DATE: AGENDA ITEM NUMBER: February 12, 2013 5.3 SUBJECT: Tax Exempt Financing BACKGROUND: For more than 100 years, the concept that one body of government should not tax another body of government has existed. Currently, the owners of municipal bonds are not required to pay federal income tax on the interest income they receive from the bonds. (And,the owners of federal bonds are not required to pay state and local income tax on the interest they receive from those bonds.) Municipal bonds are a tool that local government entities finance their critical infrastructures including but not limited to: electric, water, wastewater,and gas systems; roads and bridges;government buildings, schools, and hospitals. DISCUSSION: Beginning in 2010 and again with the recent"fiscal cliff' negotiations,Congress and the Executive branch have discussed making changes to the federal income tax exemption on municipal bonds. The elimination of these exemptions would result in one body of government taxing another. This would also result on a crippling effect on local government's ability to finance new or maintenance on critical infrastructures. The increase cost of money to finance these critical infrastructures would inevitably be passed on through taxes, fees, and rates. For municipal utilities, this additional cost of doing business places additional burdens on the utility's ability to remain competitive. The elimination of tax exempt financing does not provide any real savings to taxpayers. The savings at the federal level would just be passed down to taxpayers at the state and local level. Federal deficit reduction efforts should focus on potential reduction strategies that provide saving, not pass them on to others. Because of the ramifications of the elimination of tax exempt financing to municipal governments, this topic will be a priority for MMUA this year. ACTION REQUESTED: Staff recommends the adoption of the attached resolution supporting the preservation of tax exempt financing. ATTACHMENTS: • Proposed ERMU Resolution Number 13-1 �$ Page 1 of I !POWERED NATURE Reliable Public Power Provider P O W E R E D T o S E R V E