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Madison finance committee backs city resolution to protect federal municipal bond tax exemption
Summary
The Madison Finance Committee unanimously adopted a resolution putting the city on record in favor of preserving the federal tax exemption for interest on tax-exempt municipal bonds after a presentation from the Government Finance Officers Association on potential national budget proposals that could target the exemption.
The Madison Finance Committee on May 27 unanimously approved a resolution declaring the city's support for preserving the federal tax exemption on interest from tax-exempt municipal bonds, a financing tool local officials say underpins much public infrastructure investment.
The resolution, introduced as Legistar file 87963, puts the city "on record on this issue" and will be shared with the city's lobbyist and its congressional delegation, Finance staff said during the meeting.
Why it matters: The Government Finance Officers Association, represented to the committee by Emily Brock, director of federal policy, told members that congressional budget negotiations in 2025 could include proposals to reduce or repeal the municipal bond interest exemption as a way to raise federal revenue. Brock said such a change could raise about $470 billion over 10 years in federal receipts but would also remove an important lower-cost financing tool used by state and local governments.
"We are a living and breathing piggy bank for Congress," Emily Brock said, describing the municipal bond interest exemption as among the top 10 federal tax expenditures and a recurrent target when lawmakers look for budget offsets.
Brock told the committee the exemption supports about 75% of the nation’s public infrastructure investment and estimated the national household cost if the exemption were eliminated at roughly $6,500 per household over a 10-year period. She also said tax-exempt bonds currently provide an interest-rate benefit of about 200 basis points (two percentage points) to issuers compared with taxable borrowing, and that, on a $4 trillion market, that spread equates to a roughly $800 billion saving over 10 years.
Committee members asked about related tax proposals. Alder Evers asked whether changes to the state-and-local tax (SALT) cap intersect with the municipal bond issue. Brock said SALT and municipal bond tax treatment are distinct policy tools and that advocates have been educating lawmakers that raising the SALT cap is not a direct trade-off for the municipal bond exemption.
The vote: The committee moved and seconded adoption of the resolution and recorded a unanimous vote in favor. Staff said the approved resolution will be transmitted to the city’s lobbyist and the congressional delegation to inform federal advocacy.
Context: The committee heard that national-level budget bills under consideration in 2025 include a range of tax and spending changes and that the municipal bond exemption has been repeatedly considered as a pay-for in past major tax changes. The Government Finance Officers Association has created materials, including project maps, to show members of Congress examples of local projects financed with tax-exempt bonds; Brock cited Madison’s bus rapid transit project as an example of locally financed infrastructure supported in part by tax-exempt borrowing.
What comes next: Staff said the resolution will be shared with the city’s federal advocates; no additional local action on the item was recorded at the meeting.
