Thus far in 2013, our country has faced two major economic hurdles– first, the showdown over the fiscal cliff in early January and now the impositionof massive federal budget cuts known as the Sequestration. Later this month Congress will also have topass a measure to continue funding of the government after March 27, when thecurrent funding runs out. Later this summer, Congress will face the issue ofraising the legally authorized borrowing limit.
As Congress debates the fiscal realities of budget cuts andongoing budget deficits, reviewing and revising the tax code has emerged as apriority. Included in that debate is a proposal to eliminate or modify theability of municipal agencies to issue tax-exempt financing allowed to fundcapital projects.
First, what is tax-exempt financing and why doesElectriCities care about it? Tax-exempt financing is a common term to describethe long-standing position of the federal government that allows certainmunicipal bond interest to be exempt from federal taxation. The exemption fromtaxation of interest income derived from debt issued by state and local governmentsgives municipal bond investors an added benefit for their investment and allowsmunicipalities to pay a lower interest rate on debt.
The lower interest rate frees up municipal budgets for newinitiatives, instead of paying higher amounts to meet debt service on projectsof local benefit. If the tax-exempt financing provision is eliminated, ourcosts will be higher. The same is true for municipalities and counties acrossthe state and country.
A recent report from a coalition of municipal entities saysstate and local governments financed more than $1.65 trillion of infrastructureinvestments over the last decade through the tax-exempt bond market. Publicpower entities financed nearly $147 billion during this time. (Readthe full report.) In fact, nearly 75 percent of all capital infrastructureprojects started in 2012 were financed using tax exempt debt.
The prospect of losing the favorable tax treatment of stateand local debt issuances is extremely serious for our municipal Power Agenciesand our members, as well as state governments and school districts. We havebeen actively following this issue as it has emerged over the past year. We areworking on this issue both individually and as part of a coalition with the AmericanPublic Power Association and the Large Public Power Council. We will continueto monitor Congressional debate on the topic and will be regularly communicatingwith lawmakers about the significance of this issue.
These changes could threaten our financial stability, one ofour corporate strategic elements. We owe it to our members and public powercustomers to work against any changes to tax-exempt financing that will raiseour costs. Tax-exempt financing is the life-blood of public power communities andwe will do everything in our power to preserve it.