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Jobs, Municipal Bonds, Internet Sales Taxes Focus of Metro Economies Committee

By Larry Jones
January 28, 2013

Louisville Mayor Greg Fischer reminded mayors that cities across America are still recovering from the Great Recession, which set the tone for the January 17 meeting of the Metro Economies Committee. Still facing high levels of unemployment, he said most local communities continue to place a high priority on jobs and economic growth. Two speakers—Economic Development Acting Assistant Secretary of Commerce Matt Erskine and U.S. Treasurer Rosie Rios—discussed a number of efforts underway at the federal level to spur jobs and economic growth.

EDA Multi-Agency Collaborations

Erskine told mayors that the Economic Development Administration is leading three multi-agency efforts to spur jobs and economic growth: a Strong Cities, Strong Communities initiative, which is working to empower local leaders to identify and leverage bottom up strategies to strengthen their local economic ecosystems; the Make it in America Challenge, which is designed to accelerate the trend of companies brining jobs to the United States and making investments here; and the i6 Challenge Program, which encourages and rewards innovative, groundbreaking partnerships across the nation that accelerate the commercialization of cutting-edge research and related new company formation.

CDFI Fund/New Strong Cities, Strong Communities Initiative

Mayors were told that the Community Development Financial Institution (CDFI) Fund strives to increase economic opportunity in underserved communities by providing monetary financial and technical assistance awards to Community Development Financial Institutions (CDFIs) and Community Development Entities (CDE). The CDFI Program recently awarded $186 million in financial and technical assistance grants to CDFIs in 210 communities. She also encouraged mayors to go to the U.S. Treasury Department’s website to check out the New Markets Tax Credit program which recently provided $3.6 billion to Community Development Entities. Rios pointed out that the Department of the Treasury is working with 18 federal agencies on the Strong Cities, Strong Communities. She said the President launched a new interagency pilot initiative to strengthen neighborhoods, towns, cities and regions around the nation by strengthening the capacity of local governments to develop their economic vision and strategies. The pilot phase is currently underway in seven cities: Chester (PA), Cleveland, Youngstown, Detroit, Fresno, Memphis and New Orleans.

y strengthening the capacity of local governments to develop their economic vision and strategies. The pilot phase is currently underway in seven cities: Chester (PA), Cleveland, Youngstown, Detroit, Fresno, Memphis and New Orleans.

Tax Exempt Municipal Bonds

Fischer told mayors that a number of proposals were circulated last year that would have eliminated or limited the deduction on tax-exempt municipal bonds. “We think these proposals will hurt local governments by destabilizing the bond market and driving up our borrowing costs,” he said. Updating mayors on the issue Michael Decker, Managing Director and Co-Head of the Municipal Securities Division for the Securities Industry and Financial Market Association, explained that the federal tax-exemption on municipal bond interest “…is the single biggest form of assistance that the federal government offers to states and localities, or assistance generally for building infrastructure.” He further pointed out that if the tax exemption is eliminated, the costs of local government borrowing to build schools, roads, airports, water and waste water systems would increase somewhere in the neighborhood of two percentage points. A proposal to cap the deduction on interest on municipal bonds at 28 percent was considered in connection with the fiscal cliff bill. Decker said we were fortunate that it was not included in the final legislation. He warned, however, that the issue is likely to resurface later this year when Congress considers the debt ceiling legislation, sequestration, and a continuing resolution. He also encouraged mayors to make sure their congressional delegations understand that the vast majority of benefits associated with tax-exempt municipal bonds is accruing to state and local governments in the form of reduced borrowing cost.

Marketplace Fairness Act

Corey Tellez, Legislative Assistant to Senator Richard Durbin (IL), updated mayors on the Marketplace Fairness Act (S. 1832), a bipartisan proposal that would level the playing field between merchants on Main Street and merchants who sell over the Internet. Due to a 1992 Supreme Court ruling, state and local government are prohibited from requiring Internet and other out-of'state merchants to collect their sales taxes. Under the proposal, Internet merchants would be required to collect state and local sales taxes just as merchants on Main Street are required to do. She said the bill has been gaining bipartisan support. It enjoys 21 cosponsors in the Senate. Twenty three governors (15 Republicans and 8 Democrats) and a countless number of mayors and local leaders have voiced support for the bill. Attempts were made to move the bill last year but to no avail. Senator Durbin, along with Senators Michael Enzi (WY) and Lamar Alexander (TN), plan to re-introduce the bill soon, with some revisions. Mayors were asked to continue urged their Senators to support the bill.

Pension Liability

To address a growing pension liability problem, San Jose Mayor Chuck Reed explained that last June the voters approved a ballot initiative that changed the city’s charter to require city employees to pay 16 percent more for their pension benefits or they could choose a new less expensive plan which would cost them and the city less money. He said most of the unions thought that having an employee choice provision was a good idea but they wanted assurances that if they adopted the lower cost plan, the tax treatment would be appropriate. So the city agreed to seek a private letter ruling from the IRS just to give everybody comfort. So far the IRS has not issued the ruling. In response, Reed pointed out that the Conference of Mayors and the National League of Cities adopted a resolution last year urging the Administration to issue guidance in this area. While the Treasury Department has included the issue on its work plan for 2013, there are 17 issues on their work plan. Mayors were urged to send letters to the Administration to demonstrate this is not just a California problem, but a national problem.