In Support of the Tax Exemption for Municipal Bonds
Adopted at the in 2017
WHEREAS, The United States Conference of Mayors is dedicated to ensuring local control and decision making; and
WHEREAS, tax-exempt municipal bonds provide access to affordable capital that finances infrastructure that touches the daily lives of every American and are the foundation of civilized society, including roads, transit, schools, affordable housing, water and wastewater, hospitals, airports, and electricity; and
WHEREAS, three-quarters of all infrastructure investments made in the United States are financed by state and local governments and their agencies, including many investments made with tax-exempt municipal bonds; and
WHEREAS, tax-exempt municipal bonds have, for 100 years, been the primary financing tool state and local governments use to access capital markets to meet the infrastructure needs of their citizens; and
WHEREAS, interest on municipal bonds is exempt from Federal taxation under a principle of reciprocal immunity under which the Federal Government is exempt from State and local taxations and local governments are exempt from Federal taxation; and
WHEREAS, this exemption dates to the creation of the income tax in 1913; and
WHEREAS, savings from affordable financing through tax-exempt bonds allows for greater infrastructure investments and savings passed directly to taxpayers and ratepayers in the form of reduced taxes and fees; and
WHEREAS, keeping infrastructure costs low is critical to job creation and to the infrastructure investments that are the backbone of our economy; and
WHEREAS, the American Society of Civil Engineers has given a grade of D+ for the condition and performance of the nation's infrastructure, and estimates an investment of $3.6 trillion in our infrastructure will be needed by 2020; and
WHEREAS, in recent years we have seen proposals from Congress and the Administration to cap, limit, eliminate or replace tax-exempt bonds; and
WHEREAS, in December of 2016, The United States Conference of Mayors leadership met with President-elect Trump and he committed to them that he fully supports retaining the tax exemption for municipal bonds; but the one-page tax reform proposal released by the Administration in April includes language that could be read as threatening the tax exemption for municipal bonds; and
WHEREAS, several studies have concluded convincingly that proposals to limit, eliminate or replace tax-exempt bonds would result in significantly higher borrowing costs for state and local government; and
WHEREAS, increased borrowing costs would translate to increased fees and increased taxation at the local level, or in decreased infrastructure investment; and
WHEREAS, limiting, eliminating or replacing tax-exempt bonds could shut many small issuers out of the bond market entirely; and
WHEREAS, state and local governments cannot and should not rely exclusively upon federal tax credits, federal reimbursement payments, federal grants and federal loans to finance infrastructure; and
WHEREAS, tax credit bonds and direct subsidy bonds are a good complement to traditional tax-exempt municipal bonds but would be a poor substitute for them due to reliance on a federal subsidy and higher costs for smaller issuers; and
WHEREAS, tax-exempt municipal bonds are an infrastructure financing tool that maximizes local control and local decision making with minimal federal bureaucracy or interference; and
WHEREAS, over the past decade funding for core federal government infrastructure grant programs has been stagnant at best and in many cases has declined precipitously; and
WHEREAS, federal mandates significantly increase state and local government infrastructure costs, with mandates related to the Clean Water Act placing an especially large burden on city governments; and
WHEREAS, in an era of increasing federal mandates and federal budget austerity, capping, limiting or eliminating tax-exempt bonds would essentially signal a federal divestment in infrastructure; and
WHEREAS, the federal tax code outlines rules for a special category of bonds (often called 'private activity bonds') that permit a greater degree of private sector involvement in projects and programs that provide important public benefits, including housing, transportation, economic development, higher education facilities and financing, with the majority issued for housing (affordable multi-family housing and mortgage revenue bonds); and
WHEREAS, Representatives Randy Hultgren (R-IL) and Dutch Ruppersberger (D-MD) formed the bipartisan Municipal Finance Caucus to advocate for state and local governments' ability to independently finance infrastructure projects and keep their communities strong, including preserving that tax exemption for municipal bonds,
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NOW, THEREFORE, BE IT RESOLVED, that The United States Conference of Mayors opposes any proposal to cap, limit, eliminate or replace tax-exempt bonds, including any proposal that would further restrict or limit private activity bonds; and
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BE IT FURTHER RESOLVED, that The United States Conference of Mayors thanks Representatives Hultgren and Ruppersberger for their leadership on municipal finance issues and urges House members to join the Municipal Finance Caucus.