Dear President Obama and Speaker Boehner:

Our organizations representing states and local elected and appointed officials urge you during year-end negotiations to avert the “fiscal cliff” and retain the current treatment of exempting municipal bond interest in the federal tax code.

For 200 years, municipal bonds have assisted states, cities, and counties in financing their infrastructure needs, including roads, bridges, schools, hospitals, transit systems, housing, public power and gas systems and utilities, and other vital projects serving the public good.  Given the tremendous overhang of unmet needs throughout the country, policymakers should encourage, not limit, financing for critical infrastructure projects, which will also create much-needed jobs.  

Taxing municipal bonds would immediately increase borrowing costs for state and local governments by as much as two percentage points, which translates into a 25 percent increase in infrastructure costs over time.  This would cause a significant decrease in infrastructure spending by states and municipalities, further slow the economic and jobs recovery nationally, and cost taxpayers and ratepayers billions of dollars in higher interest costs each year. Even the possibility of altering the tax treatment on outstanding municipal bonds – essentially a retroactive tax – creates uncertainty and would have adverse effects on governments needing to access capital markets. 

This uncertainty would have a chilling effect on infrastructure investments and jobs because the approximately $40 billion annual cost from the municipal bond interest exclusion leverages $400 billion in new infrastructure projects annually.

Making abrupt, fundamental changes to the current tax treatment of municipal bonds as part of year-end considerations would have far-reaching adverse and unintended consequences affecting jobs and infrastructure.

As part of the coming debate over comprehensive tax reform in 2013, our organizations stand ready to work with Congress and the Administration to discuss the treatment of infrastructure financing.

Sincerely,