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Experts warn losing federal tax exemption for municipal bonds would raise borrowing costs for Minnesota projects
Summary
Presenters from PFM, Minnesota Management and Budget, Minnesota Housing and the Public Facilities Authority told the Capital Investment Committee that removing the federal tax exemption for municipal bonds would increase borrowing costs, reduce the number of feasible projects and raise costs for local taxpayers and state funds.
Presenters told the Minnesota House Capital Investment Committee on March 18 that eliminating the federal tax exemption for municipal bonds would raise borrowing costs for states and local governments and could reduce the number of projects that can be built.
Jessica Cameron Mitchell, managing director and partner at PFM Financial Advisors LLC, told the committee municipal tax-exemption is effectively a federal subsidy that lowers interest rates for state and local issuers. Using recent market examples, she showed tax-exempt yields have traded at roughly 60–80% of comparable taxable yields and said the spread…
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