States and localities have issued nearly $258 billion in tax-exempt municipal bonds over the past ten years to pay for water and sewer infrastructure, according to a report from the U.S. Conference of Mayors, the National League of Cities and the National Association of Counties. Issued to counteract any action in Congress to reduce or eliminate tax-free interest on municipal bond investments, Protecting Bonds to Save Infrastructure and Jobs finds that state and local governments have financed more than $1.65 trillion of total infrastructure investment through tax-exempt bonds in the past decade.
Some lawmakers have proposed curtailing the tax exemption as a way to reduce the federal budget deficit, but this would lead to states and localities paying higher borrowing costs as they finance infrastructure upgrades. The report compares the potential cost of two proposals to modify the exemption: one that would eliminate it completely and another that would impose a 28 percent tax-benefit cap on the itemized deductions and exclusions of certain taxpayers. States and localities would have paid an additional $173 billion in interest costs over the past ten years under the 28 percent cap proposal and an additional $495 billion in interest costs if the tax-exemption were repealed completely. These figures represent the additional interest costs on the financing of all forms of infrastructure.
The reportis online at www.naco.org/research/Documents/Protecting-Bonds-to-Save-Infrastructure-and-Jobs-2013.pdf.