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NACo research director
Municipal bonds are the primary method used by states and local governments to finance public infrastructure projects. Any change to the taxation status of this voter-approved debt impairs counties’ ability to develop local public works projects.
- Tax-exempt municipal bonds are the most important tool in the United States for financing state and local infrastructure. State and local governments financed more than $1.65 trillion of infrastructure investment over the last decade (2003–2012) through the tax-exempt bond market.
- Ninety (90) percent of infrastructure muni bonds financing went to schools, hospitals, water, sewer facilities, public power utilities, roads and mass transit over the last 10 years. During the last decade, states and local governments used $514 billion of tax exempt municipal bonds to build primary and secondary schools; nearly $288 billion of this type of financing went to general acute-care hospitals; nearly $258 billion to water and sewer facilities; nearly $178 billion to roads, highways, and streets; nearly $147 billion to public power projects; and $105.6 billion to mass transit.
- State and Local Governments Finance Small and Large Infrastructure Projects with Muni Bonds. In 2012, the average municipal bond issuance varied from $338 million for bridges to $2.2 million for fire stations and equipment.
- States and local governments across the country have been financing infrastructure projects with municipal bonds over the last ten years. While large states hold the top spot in terms of the value of bonds issuances (California, Texas, New York, Florida, and Pennsylvania), states such as Missouri, Minnesota, and Nebraska rank high in terms of the number of municipal bonds issuances over the years.
- The estimated cost of the repeal of the tax-exempt status for municipal bonds for infrastructure purposes issued over the last 10 years is more than $495 billion. This is how much the states and local governments would have had to pay additionally in interest for muni bonds for infrastructure projects over the last 10 years if they were fully taxable over the last 10 years.
Eliminating the deduction or including it as part of any cap on deductions would increase the borrowing costs that public entities will have to pay for infrastructure improvements. The effect will be increased costs to the public for infrastructure and therefore less funding for teachers, fire and police officers, hospital workers, librarians, and construction and maintenance workers. Any change to the tax-exempt status of municipal bonds will ultimately result in less overall infrastructure spending, fewer jobs and dampened economic activity.