Report details risk of eliminating tax-exempt municipal bonds

According to a new estimate developed by the Association of Metropolitan Water Agencies (AMWA) and the National Association of Clean Water Agencies (NACWA), eliminating tax-exempt municipal bonds would increase water and wastewater infrastructure financing costs by $16 billion nationwide over a 30-year repayment period.

The latest figures represent an update to a report on the value of tax-exempt municipal bonds that AMWA and NACWA originally developed in 2013.  The newly updated data goes into greater depth by estimating not only nationwide financing cost increases in the absence of tax-exempt municipal bonds, but by also calculating these figures for each state where tax-exempt bonds were issued to fund water or wastewater infrastructure improvements in 2016 or another recent year.

According to the latest findings, communities nationwide issued nearly $38 billion worth of tax-exempt municipal bonds to finance the cost of water, sewer and sanitation infrastructure projects in 2016.  Presuming that all issuances backed uniform $50 million projects with 30-year loan maturities and “AA” credit ratings, fully taxing municipal bond interest would increase communities’ total debt service costs by $16 billion – an increase of 25 percent over the expected debt service costs with tax-exempt municipal bond interest.

AMWA and NACWA have updated the figures ahead of an anticipated congressional debate this year on comprehensive tax reform.  Congressional leaders have indicated a desire to “flatten” the tax code by reducing or eliminating a range of tax breaks and exemptions – a policy that could put tax-exempt municipal bond interest at risk.

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