For more than a century, tax-exempt municipal bonds have been the most important source of funding for water and wastewater infrastructure projects in the United States. Since 2003, municipalities have issued $258 billion worth of tax-exempt municipal bonds to fund water and wastewater infrastructure – comprising approximately 16% of all municipal bond issuance for all infrastructure projects over this period. In 2012 alone, municipalities issued more than $39 billion in state and local tax-exempt water and sewer bonds.
This year, the Obama Administration’s Fiscal Year (FY) 2014 Budget request included a proposal to implement a 28% benefit cap on tax-exempt municipal bond interest for high income taxpayers. Additionally, there are a number of other major scenarios to limit or eliminate municipal bonds that are currently being discussed on Capitol Hill. Proposals to cap or eliminate municipal bonds will have serious negative impacts on the clean water sector and its ability to finance clean water infrastructure projects affordably.
Today, NACWA released a joint report, The Impacts of Altering Tax-Exempt Municipal Bond Financing on Public Drinking Water & Wastewater Systems, with the Association of the Metropolitan Water Agencies (AMWA). The report examines the vital role of tax-exempt municipal bonds in funding drinking water and wastewater at a time when federal investment in this sector is waning.
Most notably, the report finds that if the Administration’s 28% cap had been in place during 2012, it would have cost states and municipalities approximately $6 billion in additional expenses for water and wastewater infrastructure projects, resulting in lost projects, lost jobs, less economic growth, and significant added costs to the nation’s ratepayers. The report also highlights several recent case studies from utilities around the country to demonstrate how their recent bond issuances would have been impacted by a cap or elimination of the tax exemption.
The importance of maintaining municipal bond’s tax-exempt status has been gaining attention from media and Members of Congress. At the end of June, a New York Times front-page article reported that increased interest rates have led to the steepest decline in the municipal bond market since the 2008 financial crisis. Representatives Dutch Ruppersberger (D-MD) and Randy Hultgren (R-IL) recently sent a “Dear Colleague” letter with 139 signatures to House Speaker John Boehner (R-OH) and House Democratic Leader Nancy Pelosi (D-CA), urging them to support municipal bonds and oppose proposals to cap or eliminate the tax exemption for municipal bond interest.
Moving forward, NACWA will continue to urge Congress and the Administration to avoid altering the tax-exemption as a bad idea for the public health, the environment, jobs and the economy. The Impacts of Altering Tax-Exempt Municipal Bond Financing on Public Drinking Water & Wastewater Systems is now available to download from the NACWA and AMWA websites at www.nacwa.org or www.amwa.net.