MBFA Chair Sits for Bond Buyer Podcast: Can Advance Refundings Make a Comeback?

Affirming Support for the Tax Exemption for Municipal Bonds and in Support of Reinstating the Tax Exemption for the Advanced Refunding of Municipal Bonds

• 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 taxation and local governments are exempt from Federal taxation; 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, 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, 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, the Tax Cut and Jobs Act signed by President Trump last December maintains the tax exemption for municipal bonds, including private activity bonds; and

  WHEREAS, the Tax Cut and Jobs Act repealed the tax exemption for the advanced refunding of municipal bonds, effective December 31, 2017; and

  WHEREAS, prior to the enactment of the Tax Cut and Jobs Act, the tax code allowed a tax exemption for one advanced refunding of municipal bonds; and

  WHEREAS, prior to the enactment of the Tax Cut and Jobs Act, the tax exemption for advanced refunding bonds saved state and local governments and their taxpayers and ratepayers billions of dollars and helped stretch valuable state and local infrastructure dollars; and

  WHEREAS, the loss of the tax exemption for advanced refunding will increase the cost of financing infrastructure investment for state and local governments; and

  WHEREAS, Representatives Randy Hultgren (R-IL) and Dutch Ruppersberger (D-MD) have introduced bipartisan legislation (HR 5003) to reinstate the tax exemption for advance refunding 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,

  NOW, THEREFORE, BE IT RESOLVED that the United States Conference of Mayors affirms its opposition to any proposal to cap, limit, eliminate or replace tax-exempt bonds, including private activity bonds; and

  BE IT FURTHER RESOLVED that the United States Conference of Mayors supports the reinstatement of the tax exemption for advanced refunding bonds, including HR 5003; and

  BE IT FURTHER RESOLVED that the United States Conference of Mayors thanks Representatives Hultgren and Ruppersberger for introducing HR 5003 and for their leadership on municipal finance issues and urges all House members to join the Municipal Finance Caucus.