WASHINGTON -- If there's one thing congressional staff members need to remember about municipal bonds, it's that munis "built America," Columbia, S.C. Mayor Steve Benjamin said.
Benjamin spoke at a seminar held Wednesday by the Municipal Bonds for America Coalition, a nonpartisan coalition of state and local government officials and senior leadership at broker-dealers, who seek to protect and promote tax-exempt municipal bonds.
Benjamin and other muni experts spoke at the event to Capitol Hill staffers and others who crowded into a room at the Rayburn House Office Building.
The tax-exemption for munis has been threatened by both the White House and members of Congress. President Obama's fiscal 2015 budget proposes capping the value of the muni exemption at 28%. House Ways and Means Committee Chairman Dave Camp, R-Mich., released a draft tax-reform bill earlier this year that would impose a 10% surtax on municipal bond interest for the wealthy and would also eliminate the tax exemption for private-activity bonds issued after 2014.
Panelists said that if the muni exemption was limited or eliminated, issuers would have higher borrowing costs and a harder time financing infrastructure projects. About 75% of infrastructure investment in the United States has been accomplished through tax-exempt bonds, said Benjamin, who is MBFA's chairman.
"Without municipal bonds, no airports would ever get built or repaired," said Kevin Burke, president and chief executive officer of Airports Council International - North America.
The muni experts stressed that tax-exempt bonds are an important tool for job creation and economic development.
The cost of the muni exemption to the federal government is insignificant compared to the number of jobs that tax-exempt bonds help create, Benjamin said.
Many companies are involved in building bond-financed airports, so without tax-exempt bonds, there would be less construction and commerce and higher unemployment, Burke said.
A congressional staff member asked the panelists how bonds can benefit manufacturing. Benjamin said that manufacturers will come into an area after there is solid infrastructure in place, and that infrastructure is bond-financed. Lane Dickson, the moderator of the event and senior manager of federal affairs for the Salt River Project, said that to the extent that financing utility projects with munis helps to keep electricity and water rates affordable, manufacturers are helped by the muni exemption.
The panelists also emphasized that munis are a stable type of investment. Benjamin noted that the default rate on investment-grade municipal bonds is less than 0.1%. Ronald Bernardi, president and CEO of the broker-dealer firm Bernardi Securities, said "the municipal market encourages us as a nation to invest conservatively, and that's good in terms of planning for our retirement."
There are several things Congress could do to improve the muni market, Bernardi said. Congress could establish a modified Build America Bond program that could be a complement to traditional tax-exempt bonds, it could allow more issuers to have the ability to issue bank-qualified bonds, and it could continue to improve disclosure in the market.
One audience member asked the panelists about their opinions on private-activity bonds.
Bernardi said he doesn't think that items such as car museums and culinary schools should be financed with tax-exempt bonds. But Dickson noted that PABs can finance low-income housing and other infrastructure with a public purpose. MBFA as a group supports maintaining current law, which allows PABs issued for some purposes to bear tax-exempt interest.
