Washington taxpayers would have paid over half-a-billion dollars more for the Evergreen Point Floating Bridge in Seattle if tax-free municipal bonds had not been used to fund its replacement. Fortunately, the state was able to issue the bonds tax free, which saved Washington residents hundreds of millions of dollars.
For more than 100 years, state and local governments have used this funding mechanism as a low-cost, viable way to finance bridges, such as the Floating Bridge, as well as roads, schools, hospitals and other services that improve the quality of life for all Americans. In fact, state and local governments invested more than $400 billion in public infrastructure using tax exempt municipal bonds last year alone. This is in part because tax exempt municipal bonds have lower interest costs than taxable bonds and thus offer communities an affordable way to invest in infrastructure.
Unfortunately, federal proposals to limit or remove the tax exemption of municipal bonds remain on the agenda today. With infrastructure investments needed across the country, changing the tax exemption of municipal bonds would have a devastating effect on countless projects.
Around the nation, more than 140,000 bridges are structurally deficient, and more than half of U.S. schools are in various states of collapse. In its most recent survey, the American Society of Civil Engineers rated America’s infrastructure a “D+” and estimated that deteriorating roads, dysfunctional water lines and other failures will cost the average family $3,400 a year this coming decade.
The ASCE has also estimated that more than $3 trillion will be needed to modernize and repair America’s infrastructure by 2020 — a price tag that will fall predominantly on local municipalities. With 75 percent of all public infrastructure projects being built by state and local governments, it is crucial that federal tax policies not limit this primary mechanism for funding these projects.
Current federal proposals to limit this tax exemption would make municipal bonds less attractive to investors, leaving already-stretched state and local governments to shoulder the burden. This would ultimately raise costs for taxpayers by more than $17 billion – a damaging blow to communities at a time when most cannot afford it. The loss of project funding could also drastically cut local employment opportunities each year since infrastructure projects would face smaller budgets, or worse, not be approved due to higher interest payments caused by removing the tax exempt status.
Dismantling a system that has a proven track record of success is not the answer. As our country works to meet the challenge of modernizing our aging infrastructure, preserving the tax exempt status of municipal bonds is essential for financing these projects.
Seattle’s Evergreen Point Floating Bridge is one clear example of why tax exempt municipal bonds remain critical for communities to meet their basic infrastructure needs, but countless other examples exist throughout the fifty states. By preserving this important financing tool, America will have the opportunity to take the lead once more in developing a world-class infrastructure system that creates a more prosperous future for all.
James McIntire is the Washington State Treasurer and President of the National Association of State Treasurers.
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