The municipal market's advocates are responding to the threat of canceling the tax exempt status of municipal bonds with a multi-pronged approach that includes Capitol Hill visits and a
"Elimination of the tax-exemption would correspondingly raise borrowing costs $823.92 billion, a cost that would be passed onto American residents and amount to a $6,554.67 tax and rate increase for each American household over the next decade," GFOA told lawmakers in the letter.
The letter is in response to a 50-page list of budget reconciliation targets that circulated in the House of Representatives about
The list pegs the savings for killing off the tax exemption at $250 billion over a 10-year timeframe. Ending "tax preferences" for private activity bonds, Build America Bonds, and other non-municipal bonds would result in $114 billion savings for the same period.
"If you look carefully, the bonds that are indicated in the Ways and Means list is the exemption on outstanding bonds, not future issued bonds," said Emily Brock, director of the federal liaison office of GFOA.
"If it was taken literally, outstanding bonds would no longer have the privilege of the tax exemption."
In order to make the objections clear the GFOA and its partners in the Public Finance Network are bringing the message home through the
"We talk about tangible things in their district that they understand will be impacted if the tax exemption goes away," said Brock. "Then it's up to the investor community to tell the story about if you rip away the exemption from grandmas and grandpas, then you've got political suicide."
The investor side has been expressing concern about the issue since
"Overall, we still think there is a 50% or greater chance that the municipal bond tax-exemption could be eliminated or significantly curtailed," said Tom Kozlik, managing director head of public policy and municipal strategy for Hilltop Securities.
"The chances of this would drop significantly if we were aware of a concerted advocacy and education effort in support of the tax exemption, similar to like what has been occurring in support of raising the SALT cap."
Raising the cap on state and local taxes also appears on the list, a move that theoretically would save $1 trillion through ten years as compared to extending the cap via the Tax Cuts and Jobs Act.
The strategy for thwarting the threat hinges on timing and the myriad challenges heightened by slim margins in a Congress that's also facing pressure around raising the debt ceiling and taming an out-of-control budget deficit.
"House Republican leadership has stated that they would like to be completed with budget reconciliation by Easter recess," said Nick Key, VP of federal government affairs for the Security Industry and Financial Markets Association.
"Given the difficulty of getting the caucus on the same page, Republicans will need to pitch a perfect game in order to get this done within that timeframe. It's important that we are educating lawmakers on the importance of the tax-exemption for municipal bonds."
The education process includes spelling out the actual costs and perceived savings.
The National Association of Bond Lawyers works from talking points that include numbers showing that 60% of tax-exempt municipal bondholders are over 65 and are relying on them for retirement income.
Tax-exempt munis also provide local communities access to the public securities market and offers them less expensive capital for financing infrastructure projects.
"Our research indicates that the savings spread between taxable and tax-exempt municipal bonds averages about 210 basis points," said Brian Egan, chief policy officer, NABL.
"The average tax-exempt rate for community borrowers in 2023 was 54% lower than the average taxable rate. That amounts to nearly $824 billion in estimated savings to our communities over the next 10 years.
"If you look at the leaked menu of options from Congress the other week, they have the tax-exemption at costing $364 billion over that same window."
