Financing costs for public water and wastewater utilities would increase under proposed tax reforms that would limit or eliminate the federal income tax exemption for interest earned on municipal bonds, according to a white paper released last week by AMWA and the National Association of Clean Water Agencies (NACWA). The report, The Impacts of Altering Tax Exempt Municipal Bond Financing on Public Drinking Water and Wastewater Systems, employs several real-world examples of recent municipal bond sales to fund water and wastewater infrastructure in order to estimate how much communities’ interest payments would increase under the various reform proposals under consideration.
Lawmakers are contemplating proposals that would limit or eliminate the federal income tax exemption for interest earned on municipal bonds. Rather than merely simplifying the tax code, adjusting the municipal bond tax exemption would cost local water system ratepayers millions of dollars per year in new interest costs, the report indicates.
The study shares specific examples of water and sewer issues from AMWA and NACWA members and applied three proposed changes to the tax-exempt status of municipal bonds to estimate the increased debt service cost that would have to be absorbed by the issuers’ ratepayers. The analyses found that financing costs would increase for every surveyed utility under each of the proposed reform scenarios.
The white paper will be used to advocate on Capitol Hill in favor of preserving municipal bonds in their current form.