URBAN ECONOMIC POLICY
Supporting the U.S. Census Bureau's Revised Census 2000 Plan
Tax Incentives to Revive Distressed Communities and Promote Smart Growth in the 21st Century
Opposing Mandatory Social Security Coverage for State and Local Employees
Increasing the Limit on Small Issue Tax-Exempt Municipal Bonds
Post Office Community Partnership Act of 1999
A National Agenda for Cities and Metropolitan Areas
Revising the Federal Budget "CAPS"

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URBAN ECONOMIC POLICY

INCREASING THE LIMIT ON SMALL ISSUE TAX-EXEMPT MUNICIPAL BONDS

WHEREAS, in preparing to meet the needs of the 21st Century, local officials are facing increased demands to expand and build new public facilities to accommodate the needs of their residents; and

WHEREAS, in order to meet these growing demands, municipalities must be given increased flexibility to finance capital improvement projects through tax-free municipal bonds; and

WHEREAS, issuers of municipal bonds are generally prohibited by law from investing the proceeds of any debt issues and taxable instruments in earning a profit on the spread; and

WHEREAS, there is currently a small issuer exemption for municipalities that issue bonds of $5 million or less partly because it was originally determined that the paper work would be onerous and returns to the U.S. Treasury would not be significant enough to make it worthwhile; and

WHEREAS, since the enactment of the $5 million small issuer exemption, inflation has significantly increased the cost of development and building capital improvements, while no provision was made for indexing the $5 million limit for inflation; and

WHEREAS, corporations and banks are restricted from purchasing municipal tax-exempt bonds unless the amount of the bond is not more than $10 million per year; and

WHEREAS, the $10 million tax-exempt limit under current law does not provide for indexing to offset inflation; and

WHEREAS, by allowing corporations and banks to purchase said bonds, the cost of debt is reduced because there is more competition to buy the bonds; and

WHEREAS, corporate investors hold about 15 percent of all outstanding municipal debt and up to 50 percent of new issues; and

WHEREAS, small issues ($10 million or less), account for approximately 70 percent of the annual number of bonds issues but only about 13 percent of the annual dollar amount; and

WHEREAS, increasing the exemption limits for municipal bonds would help a large number of cities finance badly needed capital improvement projects without causing a significant loss in federal revenues,

NOW, THEREFORE, BE IT RESOLVED that The U.S. Conference of Mayors urges Congress to enact legislation to increase the limit on small issue municipal bonds from $5 million to $10 million with further indexing for inflation, and to increase the tax exempt limit on municipal bonds that corporations and banks may purchase from $10 million to $25 million with further indexing for inflation.

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