Officials warn losing municipal bond tax exemption would raise borrowing costs, curb projects and hit housing and water programs

Summary

Advisers and state officials told the committee that proposals to remove federal tax exemption for municipal bonds would raise interest costs on state and local borrowing, reduce the number of feasible projects and increase costs for housing and drinking‑water and wastewater borrowers in Minnesota.

Municipal finance advisers, state budget officials and agency leaders told the Capital Investment Committee on March 18 that eliminating the federal tax exemption for municipal bonds would materially increase borrowing costs for Minnesota and diminish the number of projects that can be financed.

Jessica Cameron Mitchell, managing director and partner at PFM Financial Advisors LLC, said tax exemption functions as a federal subsidy that lowers interest costs for state and local issuers. “Borrowing for public infrastructure will be more expensive if municipal tax exemption is lost,” she said, and provided market comparisons showing taxable issues can raise overall debt service by double-digit percentages compared with tax-exempt issues in examples she reviewed.

Minnesota Management and Budget Assistant Commissioner Jen Hassimer told the committee the proposal has appeared in federal discussions about offsets for extending the 2017 Tax Cuts and Jobs Act and…

Officials warn losing municipal bond tax exemption would raise borrowing costs, curb projects and hit housing and water programs

Summary

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