NACo continues to raise concerns with potential changes to tax treatment of municipal bonds. State and local governments have, for decades, been afforded special status where interest payments to bondholders is non-taxable for federal income taxes. With this policy, counties and other issuers may offer borrowing at substantially reduced interest rates as compared to comparable taxable investment vehicles.
NACo’s website shows an analysis of the potential added costs to counties nationwide from limiting or repealing this tax treatment — the effects of which could be devastating.
From the NACo report:
Tax-exempt municipal bonds are the single most important tool that counties use for financing our critical infrastructure. Any change to the taxation status of often voter-approved debt issued by counties risks local public works projects that benefit communities and puts into question the nature of the U.S federalist partnership.
NACo calls on Congress and the Administration to reject any proposals that harm the financing of local infrastructure projects by changing the tax-exempt status of municipal bonds. Municipal bonds provide a low-cost and efficient way for counties to finance much of America’s critical infrastructure, including schools, hospitals, airports, water and sewer systems, and roads and bridges.
Among the counties illustrated in detail in the NACo report is Prince George’s County, Maryland, who could see a nearly $23 million annual cost increase (based on 2012 data).