February 29, 2016
By: Ken Miller and James McIntire
President Obama’s Fiscal Year 2017 budget proposal to limit the tax exemption for municipal bond interest would hobble state and local infrastructure projects nationwide. If implemented, this proposal would raise costs to state and local taxpayers by over $17 billion – a devastating blow to communities at a time when they can least afford it. Congress must reject this proposal that for the first time in history would tax municipal bonds.
Tax-exempt municipal bonds are an indispensible tool for overcoming our nation’s infrastructure challenges. These bonds have financed more than three-quarters of U.S. infrastructure projects in the 21st century. Since the advent of the U.S. tax system, state and local governments have used tax-exempt municipal bonds to finance the construction and maintenance of community necessities such as roads, bridges, schools, hospitals and sewers.
Every day throughout the nation, infrastructure shortfalls are addressed with financing from tax- exempt municipal bonds. Last year, state and local governments invested $400 billion in public infrastructure. If the tax benefits of municipal bonds are capped as the president proposes, the nation’s mayors – over half of whom cite underinvestment in infrastructure as their greatest challenge – state treasurers and county leaders would have significantly less to invest in infrastructure due to higher interest payments.
For example, in Washington state, the world’s longest floating bridge which connects Seattle to eastside cities across Lake Washington needs replacement after more than five decades of heavy traffic, wind and wave action. The state is issuing tax-exempt municipal bonds to replace the bridge slated to open in April 2016. If the president’s proposal was in place, it is estimated that the project would cost Washington taxpayers $265 million in additional debt service.
In Oklahoma, municipal bond financing is also an important tool in upgrading transportation infrastructure. The President’s proposal would add millions in financing costs and be a significant drain on limited tax dollars.
With our nation’s infrastructure slowly crumbling, tax-exempt municipal bonds are more important than ever. In 2015 the American Society of Civil Engineers gave the nation’s infrastructure a D+ grade. More than 140,000 state or locally owned bridges are deficient and nearly one-third of our schools require major infrastructure investment. The American Society of Civil Engineers estimates that more than $3 trillion will be needed to modernize and repair America’s infrastructure by 2020. With so many needs throughout the nation, now is the wrong time to make all these projects more expensive by fundamentally changing this incredibly successful financing program.
State and local governments are not just another “special interest,” they provide essential public services that are the building blocks of our federal Union. National tax policy should encourage state and local governments to invest in their public infrastructure. Taxpayers in every state have a very real interest in good, safe highways and modern schools that will help our economy prosper and thrive. But this interest is not limited by state borders. Our ability to stock our shelves, get our goods to market and compete globally depends on quality transportation infrastructure. Our national economy would be ill-served by school overcrowding and the lack of buildings designed for 21st century instruction and technology. By encouraging state and local governments to invest in public infrastructure we help weave the fabric of a stronger Union that is striving to be more perfect.
McIntire is the state treasurer of Washington and president of the National Association of State Treasurers. Miller is the state treasurer of Oklahoma and senior vice president of the National Association of State Treasurers.