Obama Administration Proposes to Cap Municipal Bonds That Are Crucial to Mohave County’s Financial Future

Lake Havasu City, AZ – Mohave County Supervisor Buster Johnson is urging the Arizona Congressional delegation to support municipal bonds and to oppose proposals that would eliminate or cap the deduction on tax-exempt municipal bonds in the President’s Fiscal Year 2016 Budget Proposal.  “Municipal bonds are a primary funding source for infrastructure projects in cities and counties throughout the United States,” Supervisor Johnson said.  “These projects create numerous jobs and economic growth, and it is imperative that their tax-exempt status remain unchanged,” Johnson continued.

Tax-exempt bonds were written in the first tax code in 1913 and are a well-established financing tool for state and local government.  They are mainly issued for governmental infrastructure and capital needs purposes. “Mohave County does not use municipal bonds for its improvement projects, however; the incorporated cities within the county use them to help taxpayers save on the debt issued for capital projects such as the construction or improvement of city roads, water and sewer systems and other public works projects,” Johnson explained.

According to a report by the National Association of Counties (NACo), over the last decade municipal bonds have saved local governments in Arizona roughly $36.1 billion.  If signed into law, President Obama’s Fiscal Year 2016 Budget would place a 28% limit on the value of specified deductions or exclusions from adjusted gross income and all itemized deductions; the limit would apply on interest earned for new and outstanding state and local tax exempt bonds.  NACo’s report estimates a 28% cap would cost Arizona taxpayers roughly $3.8 billion.  “This cap would increase borrowing costs to public entities and could potentially shift these costs to local residents through tax or rate increases,” Johnson said.

Through the use of tax-exempt municipal bonds, state and local governments invested 2.5 times more in infrastructure than the federal government over the last decade.  NACo reported that local governments saved roughly $1.9 million in infrastructure construction in the last decade alone by funding millions of infrastructure projects with the help of municipal bonds.  “Placing a cap on municipal bonds would have a dire effect on Mohave County’s economic and financial future,” Johnson stated.  “These tax-exempt bonds have and can continue to save the taxpayers money by offering lower interest rates on infrastructure projects throughout the county,” Johnson ended.

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