A group of the nation’s mayors pushing to maintain the tax exemption on municipal bonds received some unexpected but welcome news recently: the president-elect supports the status quo.

The next step, local leaders said, is reinforcing their message to Congress.

“He’s the president-elect, and he said he would keep it,” said Tom Cochran, CEO and executive director of the U.S. Conference of Mayors, following a half-hour meeting with Donald Trump in New York.

“My lobbyist has been up on the Hill, and they said to us everything is on the table. We didn’t know what would happen.”

Trump Surprises Mayors, Supports Muni Exemption

Ideas floated attacking muni tax exemption

Various proposals to limit or discontinue the exemption have been floated for several years, as we have noted (Mayors, Senate Championing Municipal Bond Exemption).

A Congressional Budget Office report in October 2009 called tax-exempt bonds a “relatively costly mechanism for delivering a subsidy to the issuer of the bonds,” while the Obama Administration has proposed since 2011 to limit the exemption as a way to raise revenue.

Additionally, House Speaker Paul Ryan’s outline for tax reform unveiled earlier this year calls for limiting deductions, exclusions and credits in the tax code and is regarded by many as a threat to the muni exemption.

However, mayors and other state and local officials say the exemption, in place since the federal income tax was instituted in 1913, is an integral part of rebuilding the nation’s infrastructure and helps create jobs. Hence the meeting with Trump and the president-elect’s surprising remarks.

“I didn’t necessarily think we’d hear an opinion back,” said Mick Cornett, the mayor of Oklahoma City, who also attended the meeting. “I was very encouraged.”

In the discussion, which also touched on other municipal issues, Trump mentioned his infrastructure plan. As outlined on his website, it calls for offering $137 billion in federal tax credits to private investors backing transportation projects, which it says will lead to $1 trillion worth of infrastructure spending over 10 years.

Officials remain vigilant on muni exemption

Despite Trump’s encouragement, officials are continuing their lobbying efforts.

“We will remain vigilant and stay focused on protecting the tax exemption as a top priority for counties, because it will take a combined effort of the administration and the U.S. Congress to achieve any comprehensive tax reform,” Mark Belarmino, of the National Association of Counties, told The Bond Buyer.

A representative of the Government Finance Officer Association said her group would also continue its outreach efforts to Congress.

Tax-free municipal bonds fund approximately 75% of infrastructure spending. Between 2003 and 2012, an estimated $3.2 trillion in infrastructure was funded by munis across the country.

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James A. Klotz is the President of FMSbonds, Inc. Email the Author12/20/2016