Proposed changes to tax-exempt municipal bonds could increase drinking water and wastewater costs

September 2013, Vol. 68 No. 9

The National Association of Clean Water Agencies (NACWA) and the Association of the Metropolitan Water Agencies (AMWA) released a report in July examining the vital role of tax-exempt municipal bonds in funding drinking water and wastewater infrastructure.

The report, The Impacts of Altering Tax-Exempt Municipal Bond Financing on Public Drinking Water & Wastewater Systems, reviews options being discussed at the federal level to cap or eliminate the 100-year old tax exempt status of municipal bonds, a move that would cost the sector billions of dollars in infrastructure projects at a time when federal investment in water and wastewater infrastructure is waning.

The Obama Administration’s 2014 budget proposal would impose a 28 percent benefit cap on tax-exempt municipal bond interest for high-income taxpayers. In 2012, more than $39 billion in state and local tax-exempt water and sewer bonds was issued. The report finds that if the Administration’s 28 percent cap had been in place during 2012, it would have cost states and municipalities approximately $6 billion in additional expenses for water and wastewater infrastructure projects, resulting in lost projects, lost jobs, less economic growth, and significant added costs to the nation’s ratepayers.

“Tax-exempt municipal bonds are a critical financing tool for clean water agencies and their communities across the country,” said NACWA Executive Director Ken Kirk. “Proposals to limit or eliminate this tax exemption will cost municipal water and wastewater treatment agencies and their ratepayers billions of dollars per year. This report highlights the serious risks that these proposals create for investments that promote the health of our citizens, environmental improvement as well as economic development and job creation.”

“Tax-exempt municipal bonds are often the first choice of communities investing in infrastructure upgrades, but our data shows that every reform proposal under discussion would increase financing costs for water systems and their ratepayers,” said AMWA Executive Director Diane VanDe Hei. “The nation’s drinking water systems already require hundreds of billions of dollars’ worth of infrastructure investments over the coming decades, so Congress should not make it even more costly for communities to complete these necessary projects.”