Tax-exempt Municipal Bonds Reduce Infrastructure Costs

ARTICLE | Aug 7, 2015

State and local governments would have paid $714 billion in additional interest expenses from 2000 to 2014 without tax-exempt municipal bonds, according to a new report issued by ICMA and the Government Finance Officers Association. 

Other key findings from ICMA's new public policy white paper “Municipal Bonds and Infrastructure Development – Past Present and Future,” prepared by Justin Marlowe of the University of Washington on behalf of the Government Affairs and Policy Committee, include:

  • Virtually all state and local government capital investment is financed through municipal bonds.
  • In 2014, state and local governments invested nearly $400 billion in capital projects, a significant slowdown in spending. Total state and local capital spending has not yet returned to pre-Great Recession totals.
  • Approximately 90 percent of state and local capital spending is financed by debt.
  • Alternative financing methods, such as pay-as-you-go and public-private partnerships, are effective for some types of capital projects, but are not a robust alternative to traditional, tax-exempt municipal bonds
  • There are more than one million municipal bonds in the market today, issued by more than 50,000 units of government, and their total par value is just over $3.6 trillion.
  • If the federal tax exemption for municipal bonds were repealed, state and local governments would have paid $714 billion in additional interest expenses from 2000 to 2014. For a typical bond issue, this would mean $80-$210 in additional interest expenses per $1,000 of borrowed money.

Infrastructure funding is one of the most critical functions of state and local governments in the United States. Together, these levels of government are the main funders of the public sidewalks, roads, highways, bridges, and mass transit systems that Americans use to travel to work each day, as well as the public schools, colleges, and universities in which our future workforce is educated. 

Tax-exempt municipal bonds, a fundamental feature of the United States tax code since 1913,  provide a low-risk, cost-effective financing tool for the construction of infrastructure projects that are the lynchpin of the U.S. economy - improving quality of life, creating jobs, and sustaining economic development.

You may also be interested in

Feedback