When a unified national government under Republican leadership takes office in January, tax reform initiatives are a high priority. There are proposals to cap or eliminate the tax-exempt status of municipal bonds, for example, even as President-elect Trump has advocated for increased infrastructure investment. To help educate members of Congress and their staffs, the national associations of state and local governments, including ICMA and the associations of finance professionals, held a briefing on state and local budgets and bonds on November 29.

“It’s imperative to maintain the tax-exempt status of municipal bonds,” said Clarence Anthony, executive director, National League of Cities. “They are the primary way that state and local governments finance infrastructure.” 

State and local governments can make a difference in implementing the policies that the federal government wants,” noted Scott Pattison, executive director and CEO, National Governors Association. “We need flexibility to produce the results that are desired and collaboration is the key to avoiding unintended consequences.” 

“States and local governments build,” he added, “and municipal bonds are an inexpensive way to build roads, bridges, airports, schools, and other infrastructure.”

Matt Chase, executive director, National Association of Counties, gave context to the state and local investment. “We have invested $3.2 trillion from 2003 to 2012 in such infrastructure projects as schools, roads, bridges, airports, hospitals, and jails,” he noted. “The tradition of tax-exempt financing dates back to the 1800s. States don’t tax the federal government and the federal government doesn’t tax the states by the tradition of sovereign immunity.”

Timothy Firestine, chief administrative officer, Montgomery County, Maryland, stressed the importance of infrastructure investment as part of an economic development strategy.  “Growth is one way to build an economy and we have a plan to create 100,000 new jobs in the county,” he said.  But with that growth comes the need for infrastructure.  “We are adding 2000-3000 new students each year to our school system,” he noted, “the equivalent of one new high school every year.”

Firestine said that the county uses municipal bonds to build everything from bus rapid transit for four corridors to a resource recovery system, traffic synchronization, public housing, and solid waste facilities. “If Montgomery County lost that tax-exempt financing, the county would have to pay $40 million more each year to service its debt – and that is the equivalent of 536 teachers or 266 police officers,” he added.

The speakers stressed that state and local governments are open to new infrastructure investment ideas, but that tax-exempt municipal bonds are the most important tool they have for multi-year projects that require significant planning and predictable funding streams. They urged Congress not to make it harder for them to address their most pressing priorities.  

Read the Bond Buyer article about the event here.