The Association of Metropolitan Water Agencies (AMWA) urges Congress to place no limitations on the ability of water systems to use tax-exempt bonds to finance water infrastructure projects. This authority to finance essential governmental services on a tax-exempt basis is vital to the ability of metropolitan water agencies to continue to provide high quality, safe and reliable supplies of drinking water at a price that is affordable to ratepayers.
When considering future tax policy changes,Congress must keep in mind that any new tax revenue collected by limiting or eliminating tax-exempt interest earned on municipal bonds would be offset by increased interest costs that would be borne by local water system ratepayers. Limiting or eliminating the exemption would therefore represent a de-facto tax hike on local communities, while encumbering public water agencies’ efforts to raise needed capital to address water supply needs.
- Tax-exempt bonds are typically the most significant source of capital financing to meet the needs of water suppliers.
- Taxing municipal bond interest would dramatically increase nationwide water and wastewater infrastructure financing costs – effectively imposing a new tax on municipalities and utility ratepayers.
- Restriction or elimination of tax-exempt interest would seriously erode the ability of AMWA member agencies to meet existing and anticipated needs, including any new drinking water quality standards.
- Restriction or elimination of such tax-exempt interest would constitute a fundamental departure by the federal government and could threaten the ability of state and local governments to finance basic governmental facilities and services.
- Restrictive arbitrage provisions unnecessarily increase the costs of project financing.