Hultgren, Ruppersberger Joined by More Than 150 in Bipartisan Effort to Protect Municipal Bonds
Washington, DC — As Congress prepares to take on the issue of comprehensive tax reform, Congressmen Randy Hultgren (IL-14) and C.A. Dutch Ruppersberger (MD-02), Co-Chairmen of the Congressional Municipal Finance Caucus, have again sent a bipartisan letter to leaders of the House Ways and Means Committee in support of a critical tool that helps local and state governments finance new roads, schools, hospitals, fire stations and more. Also signed by 154 of their colleagues (95 Democrats, 61 Republicans total), the letter asks leadership to reject any proposal to cap or eliminate the deduction on tax-exempt municipal bonds used to finance the vast majority of infrastructure projects in America’s communities.
Nearly two-thirds of core infrastructure investments in the United States are financed with municipal bonds. Proposals previously submitted by federal officials have limited the value of tax benefits for municipal bonds, or eliminated the tax exemption on municipal bond interest altogether.
“Municipal bonds are a lifeline to local communities looking to expand a hospital or repair their infrastructure,” said Congressman Hultgren. “These tools of ‘fiscal federalism’ allow municipalities to raise their own funds tax-free, using their own expertise and avoiding the heavy bureaucracy of the federal government. We should preserve this Main Street financing tool for municipalities intimately connected to the needs of their communities.”
As a former county councilman, county executive and president of the Maryland Association of Counties, Congressman Ruppersberger believes that tax-exempt bonds are among the most efficient ways to fund critical infrastructure projects that have created hundreds of thousands of jobs.
“If the federal income tax exemption is eliminated or limited, states and localities will pay more to finance projects, leading to less infrastructure investment and fewer jobs,” Congressman Ruppersberger said. “Worse, they will be forced to shift costs to their main revenue source – property taxes – hitting the already-suffering real estate market and the wallets of American homeowners.”
Municipal bonds have funded more than $1.9 trillion worth of infrastructure construction. This financing went to the construction of schools, hospitals, airports, affordable housing, water and sewer facilities, public power utilities, roads and public transit. In 2015 alone, more than $400 billion in municipal bonds were issued to finance the projects that touch the daily lives of every American citizen and business.
In Illinois, municipal finance has helped fund key infrastructure improvements:
- Red Gate Bridge, St. Charles: Without the tax exemption, the City of St. Charles would pay an additional $619,000 in interest costs following the construction of the bridge in 2011.
- Illinois water infrastructure: Communities across the state in 2016 issued bonds to fund improvements in drinking water and wastewater projects. Cities and towns would pay an additional $262.3 million in debt service costs without the exemption, a 25 percent increase.
- Presence Health: This Illinois-based hospital and senior living care provider last year was issued $1 billion in bonds by the Illinois Finance Authority for facility improvements that are critical to serving Illinois residents. Presence is among the largest Medicaid providers in northern Illinois.
The full letter signed by all 156 Members of Congress is below:
Dear Chairman Brady and Ranking Member Neal:
As Congress considers tax reform and infrastructure financing, we, the undersigned, write to express our strong support for an already potent tool already in hand – the tax-exempt municipal bond. For more than a century, states and local governments have depended on this reliable and efficient means of financing.
Nearly two-thirds of core infrastructure investments in the United States are financed with municipal bonds. In 2015 alone, more than $400 billion in municipal bonds were issued to finance the projects that touch the daily lives of every American citizen and business. They are the roads we drive on, schools for our children, affordable family housing, water systems that supply safe drinking water, courthouses, hospitals and clinics to treat the sick, airports and ports that help move products domestically and overseas, and, in some cases, the utility plants that power our homes, businesses, and factories. These are the pro-growth investments which spur job creation, help our economies grow, and strengthen our communities.
A combination of local control and local responsibility makes municipal bonds an incredibly effective and efficient tool. Voters throughout the country overwhelmingly support tax-exempt municipal bonds, which are either approved by locally-elected officials or directly through bond referenda – fiscal federalism at its finest. This must help explain why the default rate is less than 0.01%. Federal tax exemption reduces the cost of issuing municipal bonds, but it is these voters who will pay the interest and principle on this debt. As a result, over the last decade overall state and local borrowing has actually declined in proportion to the economy, while still financing more than $2 trillion in new infrastructure investments. And, if simply left alone, municipal bonds likely will finance another $3 trillion in new infrastructure investments by 2026.
Furthermore, millions of Americans depend on municipal bonds for their economic security, and invest in them because of their low-risk nature. Nearly three-quarters of individual investors earn less than $200,000 per year and more than three-quarters are 55 or older. Businesses also rely on municipal bonds as a safe, stable, long-term investment.
In conclusion, changes to the tax-code should recognize the vital role of tax-exempt municipal bonds. Any changes under consideration to the tax exempt status that would increase the cost of financing for states and local government should be provided very careful consideration. We believe the current tax-exempt status contributes to efficient economic growth that benefits all Americans.