President Trump has pledged to work quickly with Congress to modernize America’s aging infrastructure and overhaul outdated tax codes. Lawmakers should consider the two issues hand in hand to avoid any potholes in these plans.
Since the advent of the U.S. tax system, state and local governments have financed approximately three-quarters of the country’s infrastructure projects by using tax exempt municipal bonds. This is in part because municipal bonds have a very strong repayment record—much higher than corporate bonds—allowing state and local governments to borrow responsibly for infrastructure projects while providing a safe and reliable investment option for citizens.
Unfortunately, federal proposals to limit or remove the tax exemption of municipal bonds continue to be discussed on Capitol Hill. The tax exempt treatment of municipal bonds should be preserved as lawmakers take up tax reform and infrastructure in the year ahead as removing this tax treatment would have a devastating effect on countless projects.
Municipal bonds are the most important infrastructure-financing tool available. In 2016, state and local governments invested more than $445 billion in public infrastructure using tax exempt municipal bonds. Limiting or removing the tax exempt status of municipal bonds would raise infrastructure costs for taxpayers and force me, and other state treasurers, to delay or cancel projects being developed.
Fortunately, President Trump and a growing Congressional caucus have recognized the importance of keeping this critical finance tool tax exempt.
Last December, then President-elect Trump spoke with the U.S. Conference of Mayors and indicated that he would keep municipal bonds tax exempt and protect state access to low-cost financing for infrastructure investments. Additionally, in 2016 Reps. Randy Hultgren (R-Il) and Dutch Ruppersberger, (D-MD) launched the Congressional Municipal Finance Caucus, which has grown to more than three dozen members who are dedicated to protecting this critical infrastructure financing tool.
Support for preserving municipal bonds is now more important than ever. More than 140,000 state and local bridges are deficient and nearly one-third of our schools require major infrastructure investment. In 2015, the American Society of Civil Engineers gave America’s infrastructure a D+ grade and estimated that the country would need to invest more than $3 trillion by 2020 to repair it.
America deserves better than cracked highways, crumbling bridges and dilapidated schools. President Trump’s plan to revamp infrastructure, combined with state and local investments, is sure to help make vast improvements. In the coming months, state treasurers across the nation look forward to working with Congress so that municipal bonds continue to power America’s growth in the 21st century.
Ken Miller is the State Treasurer of Oklahoma and President of the National Association of State Treasurers.