Officials warn ending federal tax exemption for municipal bonds would raise borrowing costs for Minnesota communities

Advisers and state officials on March 18 warned the House Capital Investment Committee that a federal proposal to eliminate the tax-exempt status of municipal bonds would substantially increase borrowing costs for state and local issuers and could reduce the number of projects communities can afford.

Jessica Cameron Mitchell, managing director and partner at PFM Financial Advisors LLC, said municipal tax exemption functions as a federal subsidy that lowers interest costs for state and local issuers. Using recent market comparisons of taxable and tax-exempt sales, Mitchell illustrated that identical 20-year financings can cost issuers an estimated 10% to 16% more in principal or 15%–16% more in total debt service if issued taxable rather than tax-exempt, depending on market…