- Payments in Lieu of Taxes (1966)
- Withholding of Municipal Earnings and Income Taxes from Salaries of Federal Government Employees (1967)
- Integration of Corporate and Stockholder Income Taxation (1978)
- Deductibility of State and Local Property, Sales and Income Taxes (1984)
- Leasing by State and Local Governments (1984) (2004 Update)
- Local Government Antitrust Immunity (1984)
- Municipal Bankruptcy (1984)
- Regulatory Relief (1984)
- The Federal Partnership and the Federal Deficit (1985)
- Mandate Legislation (1986)
- Securities Transfer Excise Tax (STET) (1987)
- Federal Preemption of State and Local Policies (1990)
- Investment of Surplus Social Security Trust Funds in State and Local Government Securities (1991)
- Exemption of Real Property Tax Liens from Federal Bankruptcy Automatic Stay (1993)
- Exemption from Federal Consumption Taxes (1993)
- Investment in Infrastructure and Other Public Capital Facilities (1993)
- Federal Legislation on Waste Flow Control (1994)
- The Federal Role in Investment in Infrastructure Financing (1995)
- Federal Securities Litigation Reform (1995)
- State Revolving Loan Fund Programs (1995)
- Federal Preemption of State Investor Protection Laws (1997)
- Federal Preemption of State and Local Government Taxing Authority (1997)
- Electric Utility Industry Restructuring (1999)
- Federal Legislation to Permit the Offset of Federal Tax Refunds for State and Local Tax Debts (2001)
- Guidelines for Providing Financial Stability for our Nation's Airports & The Communities They Serve (2001)
- Taxation of Remote Commerce (1986 and 2008)
Private property on certain Federal installations is not subject to state and local taxes even though the use to which such property is put does not differ from that of similar property located outside the Federal areas.
Congress has permitted states and their subdivisions to impose sales, use, gross receipts, and gross and net income taxes upon persons within Federal areas, but continue to prohibit imposition of property taxes.
The value of private property on Federal areas has increased dramatically in recent years with the advent of policy of leasing equipment of all types.
The Advisory Commission on Intergovernmental Relations has recommended that the Federal Government authorize the imposition of such taxes by state and local jurisdictions.
The GFOA believes that the Federal Government should permit states or other duly constituted taxing authorities to subject private owners to liability for payment of property taxes on property located in Federal areas within such state under specified conditions.
Canadians members abstained from voting.
Adopted: May 18, 1966 - Back to Top
WHEREAS, agencies of the Federal Government do not withhold municipal earnings and income taxes from the salaries of government employees claiming they do not have legislative authority for withholding a municipal tax from salaries; and
WHEREAS, the Federal Government is the only governmental agency in most jurisdictions that refuses to withhold municipal earnings and income taxes; and
WHEREAS, the refusal to withhold causes a tremendous administrative expense in the offices of local tax authorities in that it requires the expense of collecting and processing returns from each individual government employee; and
WHEREAS, refusal to withhold imposes a burden on the government employee in that he is required to pay the tax in a lump sum periodically; and
WHEREAS, it has been proved that the withholding of local earnings and income taxes does not impose an additional cost on the computer payroll centers.
NOW THEREFORE, LET IT BE RESOLVED: That the Government Finance Officers Association go on record approving and adopting this resolution that the Congress of the United States pass enabling legislation that will authorize federal agencies to withhold municipal earnings and income taxes from the salaries of government employees.
Adopted: June 7, 1967 - Back to Top
Integration of Corporate and Stockholder Income Taxation
The Government Finance Officers Association takes note of the various proposals which have been advanced for the total or partial integration of corporate and individual income taxes. We express no position as to the merits of the basic integration concept. It is necessary, however, for us to express a position that any such proposal should include full recognition of the municipal bond exemption.
A specific municipal bond provision is needed in any integration proposal in order to reconcile the theory of integration with the theory of the municipal bond exemption. The absence of such a specific provision would constitute a significant disincentive for corporate investment in state and local securities. At the present time, corporations own a significant amount of the outstanding state and local government obligations. Given the borrowing needs of state and local governments, a disincentive for investments in state and local securities applicable to investors furnishing such a proportion of the funds borrowed would prove extremely expensive to state and local governments, and the Government Finance Officers Association opposes any legislation which would entail such consequences. Thus, any integration proposal should continue to provide at least the present relative benefit of ownership of state and local governmental bonds.
Adopted: 1978 - Back to Top
The provision of the federal income tax code that allows taxpayers to deduct their state and local tax payments from their federal taxable income is a fundamental statement of the historical right of state and local governments to raise revenues and taxpayers not to be double taxed.
Deductibility preserves the ability of state and local governments to raise revenues and to provide services, promotes equity in the federal taxing system, discourages the migration of businesses and individuals for tax purposes, avoids excessive cumulative federal/state/local income tax rates, and preserves the autonomy of state and local governments.
The GFOA again urges the Congress and the Administration to recognize that states and local governments are not special interest groups, but are an integral part of the nation's total governmental structure of which the federal government is the other part.
For the reasons stated above, the Government Finance Officers Association (GFOA) opposes the elimination, in whole or in part, of the deductibility provision of the federal income tax code.
Adopted: May 28, 1985 - Back to Top
State and local governments use leasing to acquire assets necessary to provide public services.. The interest in leasing by state and local governments is the result of a number of economic and legal factors, including:
- Leasing often is a suitable and economic method of financing capital assets that are too expensive to fund from just one fiscal period, but have useful lives too short to justify the issuance of long-term bonds. Examples include ambulances, computers, and office machinery;
- Governments may use leasing as an alternative to bond financing;
- Governments that are hard-pressed fiscally may have to use leasing to replace equipment and acquire other capital assets in order to spread scarce resources because it may be more economical than other methods of financing;
- The need that a government has for a capital asset may be temporary, or rapid changes in technology may make ownership of equipment impractical;
- Leasing offers a method for privatizing public services and fostering public-private cooperation.
As a result, leasing is an important alternative to traditional sources of capital financing.
The GFOA opposes changes in federal tax laws that will raise the cost of leasing equipment and real property by state and local governments and governmental agencies, above the costs paid by private firms for the same equipment, or which place governments at a greater competitive disadvantage than already exists. Of particular concern, is any legislation that will adversely affect traditional leasing arrangements entered into by the majority of state and local governments.
Additionally, Congress should not act in a manner that could have negative economic effects at the local and state levels by increasing costs, without providing appropriate funding to offset these losses.
We oppose legislation to place further restrictions on proper uses of leasing for equipment or real property used by state and local governments, and believe that Congress should distinguish between proper uses and those where real abuses are found to exist.
Lastly, the GFOA opposes setting a retroactive date of enactment and believes that transactions substantially underway, but short of a binding contract, should have the opportunity to be completed.
Recommended for approval by the Committee on Governmental Debt Management on January 22, 2004
Recommended for approval by the Executive Board to the GFOA membership on March 26, 2004. - Back to Top
In January 1982, the United States Supreme Court held in Community Communications Company v. City of Boulder, Colorado (the Boulder decision) that sub-state governmental entities (cities, towns, counties, state chartered agencies and other local governments) are subject to review under the federal antitrust laws first passed by the U.S. Congress in 1890 (the Sherman Act). This ruling constituted a complete reversal of the then general assumption that local governments, like state governments, were exempt from the application of antitrust laws. The Boulder decision subjects all sub-state governments to antitrust review regardless of their charter, home rule or general law status.
The Government Finance Officers Association takes note that from 1890 to 1982, a period of 92 years during which sub-state governments were presumed to be exempt from the application of antitrust laws, no pattern of abuse developed. In the handful of cases in which a governmental entity exceeded its authority in a manner to which antitrust prosecution would be applicable, existing laws (other than antitrust statutes) proved adequate for the redress of grievances.
The only existing exemption from antitrust scrutiny -- the requirement that the entity be operating under state authorizing legislation which sets forth the state's policy to displace competition in language that is "clearly articulated and affirmatively expressed," and which provides for "active supervision" by the state -- is completely inadequate to the needs of sub-state governments and runs counter to a century-long trend in state and local government relations toward greater local autonomy.
The Government Finance Officers Association calls upon Congress to adopt legislation to clarify the applicability of the federal antitrust laws to sub-state government entities with the same status as that enjoyed the states so long as the city, county of other governmental entity is operating within or pursuant to its general enabling legislation or authority. Antitrust litigation is enormously expensive and time consuming and can result in significant delays in the implementation of public policy.
In addition, the Association recognizes that very significant protections already exist for all parties doing business with or otherwise dealing with governments in the form of due process, equal protection, and civil rights reviews, and with state open meetings, administrative procedure, and procurement requirements. In addition, whenever a sub-state entity acts beyond its authority, it is subject to challenge under existing state law and, in more extreme cases, a sub-state entity and its officials are subject to criminal prosecution under state and federal laws other than antitrust statutes.
Further, in order to return to the situation that was presumed to exist before the Boulder decision, the Government Finance Officers Association feels that such clarifying legislation should provide local governments and local government officials with the same immunity from injunctions, criminal prosecution, money damages, Federal Trade Commission (FTC) actions and suits against local government officials, as that possessed by state governments and state officials.
Adopted: April 17, 1984 - Back to Top
The revised federal Bankruptcy Code, which took effect on October 1, 1979, appears to have been drafted without recognition of certain fundamental differences between corporate and municipal finance. If enforced literally, upon commencement of a municipal bankruptcy case, the Code would invalidate prior liens on revenue streams dedicated to the repayment of municipal obligations. This is because the Bankruptcy code does not recognize a present security interest in future revenues except as "proceeds" from the sale of property in which a security has been granted.
Purchasers of corporate securities are protected from having their lien invalidated by bankruptcy proceedings because bondholders have recourse to fixed assets that can be used to repay the debt. Municipal obligations, however, are debentures that are generally not secured by an interest in specific property. Rather, municipal bonds are often secured by pledges of future general tax or specific project revenues or betterment assessments. Under the present Bankruptcy Code, it appears that liens on any of these revenue sources dedicated to the payment of debt service on municipal obligations could be invalidated once a municipality entered bankruptcy, regardless of the validity of the lien under state law.
The failure of the revised Bankruptcy Code to account for the difference between private and public financing means that contracts with bondholders may be invalidated by fiscally stressed jurisdictions. For example, a bankruptcy court judge, faced with an insolvent municipality, may legally divert revenues from a wastewater treatment facility dedicated to the payment off debt service to other municipal uses, such as the payment of salaries.
The Government Finance Officers Association (GFOA) supports efforts to clarify the Bankruptcy Code so as to maintain the effectiveness, in accordance with state law, of liens granted on revenues and other monies to secure indebtedness and of limitations on the use of monies derived from one purpose, source or activity for another.
Adopted: April 17, 1984 - Back to Top
The Government Finance Officers Association (GFOA) takes note of the fact that state and local governments have been affected greatly by the massive extension of federal controls and standards and that regulatory review and analysis has insufficiently recognized and considered the intergovernmental effects of regulations.
The Regulatory Flexibility Act of 1980 provides guidelines to federal agencies to tailor regulatory and information requirements to the scale of governmental jurisdictions subject to regulation. The purpose of the Act is to encourage agencies to utilize innovative administrative procedures in dealing with small governmental bodies that otherwise would be adversely affected by federal regulations. In general, the Act provides that if a rule will have a "significant" economic impact on a substantial number of small entities, "then, in effect, an agency must explain the rationale for the rule and solicit comments from affected parties."
Executive Order No. 12291 was issued in 1981 to reduce the burden of regulations and to increase agency accountability by providing Presidential oversight of the regulatory process. In general, the Order requires "agencies" to consider the potential costs and consequences of proposed government action, and to contemplate several alternative approaches to accomplish regulatory objectives.
The Government Finance Officers Association recommends that the full costs to states and local governments of implementing all federal legislation be considered by Congress and the Administration because federal regulations have placed significant fiscal burdens on state and local governments. The GFOA urges the adoption of measures to reduce the cost burdens of complying with federal regulations by:
- reimbursing state and local governments for the direct costs they incur in complying with new regulations,
- requiring a reduction in existing costs either by reimbursement of the costs and/or a reduction of the regulatory requirement, and
- requiring the President to prepare an annual report estimating total costs incurred by state and local governments in complying with federal regulations.
Further, the GFOA recommends that Congress and the Administration study the degree and methods of compliance with present requirements to limit excessive regulation of state and local governments and that the results of such study be made publicly available.
The GFOA also supports the adoption of appropriate procedures to authorize federal officials to meet with representatives of states and local governments during the preparation of regulations and prior to their initial publication.
Adopted: April 17, 1984 - Back to Top
The Government Finance Officers Association (GFOA) recognizes the crisis this nation faces over the foreseeable future as we attempt to reduce the magnitude of the federal deficit. We fully appreciate the difficult task facing the Administration and the Congress in this effort.
As state and local fiscal officials, we are acutely aware of the impact of the federal deficit upon the long-term health of our nation and its cities, states, and other local governments. The solution cannot be to simply shed the deficit onto state and local governments or to abandon the well-established concept of federal partnership. We must all share the burden of dealing with this problem.
If equity in dealing with national problems is our goal, we must focus on contributing to the solution, not shifting the problem to a different level of government. Thus, each major component of the revenue and expenditure pattern of the federal government must bear its equitable share of the burden of reducing the onerous deficit which, without a positive commitment from all participants to the federal budget process, has little chance of decreasing.
The GFOA therefore proposes that reductions to the federal budget deficit be done fairly and in such a way that affects each of the four major contributors to the national expenditure/resource spectrum:
- military spending which includes both defense systems, retirement and other benefit programs;
- domestic programs which represent the partnership between national, state, and local government in provision of services to all citizens;
- entitlement programs which commit a major portion of federal resources while exempting such activities from effective annual budget review; and
- federal tax policies which direct the basic revenue flows by determining what is taxed and at what level.
The GFOA recognizes that a national consensus may exist that the maintenance of or increase in one or more of these categories is essential to the public safety or welfare. Such problems, caused by constrained resources, occur regularly at the state and local level. The GFOA recommends that, if it is deemed necessary to expend more than the reduced level to sustain a vital program, said expansion should be financed by revenue enhancements. This will preserve the integrity of the deficit reduction program.
Adopted: May 28, 1985 - Back to Top
The Government Finance Officers Association (GFOA) is concerned by the impact of mandates on state and local governments by higher levels of government. These mandates impose costs on the state or local unit by reducing its revenue base or requiring programs or minimum service levels.
Mandates may serve to promote important social goals. On the other hand, federal or state government mandates frequently only shift a programmatic of fiscal burden. An example is the proposed requirement that state and local employees be covered by Medicare to reduce the federal budget deficit.
Given the finite level of financial resources, the withdrawal of support for the projects and programs originally mandated by higher levels of government and differing perceptions of priorities and appropriateness, the Government Finance Officers Association recommends that federal and state governments exercise restraint in the number of mandates that will adversely affect the revenues, expenditures, and revenue-producing ability of lower levels of government. Further, the Association supports efforts to provide relief from the administrative chaos that often results from combined federal and state mandates.
In order to ease the burden of mandates, the Government Finance Officers Association recommends that:
- a fiscal note accompany proposed legislation to disclose and assess the fiscal burden being mandated;
- adequate time be provided so that affected governments can make the resource and administrative accommodations necessary to comply with the mandate; and
- funding be provided or an alternative revenue source be authorized by the mandating jurisdiction to defray the mandated costs.
Adopted: June 3, 1986 - Back to Top
The Government Finance Officers Association (GFOA) endorses the national policy goal of reducing the federal deficit. Tax increases may be necessary to accomplish the elimination of the U.S. budget imbalance. One proposal under consideration is the Securities Transfer Excise Tax (STET). The economic impact on state and local governments of any new tax must be carefully studied before enactment. The proposal to tax the transfer of securities (including stocks and bonds) has drawn the attention of the GFOA because of its numerous negative impacts on state and local governments and because its effect on state and local governments would be inconsistent with general principles of intergovernmental immunity. Such a tax could
- increase the cost of capital for state and local governments which is needed to build and repair the nation's infrastructure because investors will demand higher interest earnings to compensate for paying the tax,
- skew short-term investment decisions by discouraging public investment officials from actively managing their portfolios in order to avoid taxation, and
- reduce the investment earnings of public employee retirement systems in the securities markets resulting in either increased pension funding costs for state and local government retirement systems or reductions in pension benefits for state and local government workers.
The GFOA, therefore, opposes the imposition of a STET on state and local government securities and on state and local government investments in securities subject to the tax.
Adopted: June 2, 1987 - Back to Top
The Constitution assigns certain responsibilities to the federal government and reserves the balance to the states. When federal policies preempt the roles of state and local governments in areas of responsibility which legitimately belong to the states, they violate the principles of our federal system of government. For example, the federal Railroad Revitalization and Regulatory Relief Act grants special property privileges to the railroad industry and preempts state and local government taxing authority.
Federal intervention in areas that rightfully belong to state and local governments cannot be condoned. Where the federal government has a legitimate policy concern, it should work with state and local governments, who are partners with the national government in our federal system. The federal government should not unduly limit states' autonomy and usurp state and local governments' authority to perform their functions and meet the needs of their citizens who are also the citizens of the United States.
Adopted: May 1, 1990 - Back to Top
Historically, state and local governments and the U.S. federal government have reciprocally exempted each other from paying excise and other taxes. The Government Finance Officers Association (GFOA) has long supported the immunity of state and local governments from taxation by the federal government. As an example, under current law the federal government taxes fuel consumption, truck and tire sales, and highway use of non-governmental users. Respecting this long-standing doctrine of reciprocal tax immunity, state and local governments and the federal government do not levy gasoline or road use taxes on each other. This relationship was reaffirmed by the continued exemption of state and local governments from the federal fuel excise tax in 1988.
Proposals are periodically made to enact new taxes that would apply to state and local governments. GFOA endorses the doctrine of reciprocal tax immunity and opposes the imposition of new taxes in any form upon state and local governments.
Adopted: May 4, 1993 - Back to Top
A national consensus has developed regarding the need for increased investment in infrastructure and other public capital facilities. Increased saving and investment is critical if the United States is to rebuild and expand its public capital stock to improve productivity, education and our quality of life; meet health, safety and transportation needs; and move into the twenty-first century on a competitive level with the other industrialized nations of the world.
While state and local governments carry a very special responsibility for building, maintaining, and rehabilitating public facilities, they cannot do it alone. The Government Finance Officers Association (GFOA) recommends a renewed federal commitment to promote, encourage and participate in investment in infrastructure and other public capital facilities. Specifically, GFOA supports the following federal actions to assist state and local governments to finance infrastructure and other public capital facilities, especially federally mandated infrastructure facilities.
- Provide ongoing financial assistance to state and local governments. Such programs should
- expand the state revolving loan fund programs to include financing for all types of infrastructure facilities,
- encourage state and local governments to leverage federal funds to derive the greatest benefit from limited federal resources,
- require a state and local government matching financial contribution, and
- recognize the special needs of fiscally distressed communities by including set-asides for such communities and providing special exemptions from matching and programmatic requirements and cross-cutting requirements that impede participation in such programs. Adopt and modify federal tax law provisions affecting tax-exempt municipal bonds, including the recommendations of the Anthony Commission on Public Finance. Such changes should
- remove or modify restrictions affecting the issuance of municipal bonds that are overly burdensome and costly such as the arbitrage rebate requirement,
- recognize a new type of public-purpose, tax-exempt bond or eliminate current law restrictions on tax-exempt financing to permit and encourage public-private partnerships,
- adopt new savings programs to encourage investments in tax-exempt securities, and
- modify existing federal tax policies related to the alternative minimum tax and the bank interest deduction to attract a broader base of traditional investors--individuals, banks and corporations--to the municipal bond market.
- Modify federal tax policies that impede the development and functioning of state bond banks and bond pools and other state credit assistance programs.
- Spend the dedicated federal highway and airport trust fund moneys for the transportation purposes for which they were accumulated.
- Provide full funding for programs established under the Intermodal Surface Transportation Efficiency Act.
Adopted: May 4, 1993 - Back to Top
Counties, cities, schools and special districts rely heavily on real property taxes as a primary source of revenue. The ability of these governments to collect properly assessed and levied real property taxes is restrained by the federal bankruptcy automatic stay. Some federal courts have ruled that real property tax liens retain their secured status in bankruptcy while other federal courts have ruled that real property tax liens are stayed. This conflict among federal courts results in the bankruptcy laws being applied differently in different parts of the country. These federal court conflicts result in substantial loss of significant amounts of real property tax revenues.
As a result, the Government Finance Officers Association requests Congress to amend Section 362(b) of the United States Bankruptcy Code, 11 U.S.C., to exempt any act to create, perfect, or enforce any real property tax lien that arose after the commencement of a bankruptcy proceeding.
Adopted: May 4, 1993
Public attention has focused recently on the surpluses in the Social Security trust funds. Proposals have been advanced to change investment policies of the funds so they function more nearly like true trust funds, namely by diversifying their investment portfolio. Since the beginning of the Social Security program, the law has restricted the investment of its excess receipts to interest-bearing obligations of the United States Government. Currently, these investments are nearly all special, nonmarketable U.S. Treasury obligations.
The Government Finance Officers Association (GFOA) believes that the safety of the Social Security trust funds and their availability for payments to beneficiaries is of primary importance.
At the same time, GFOA looks with favor on proposals that could broaden the market for state and local government securities. A broad and diversified market increases investor demand and improves the overall structure of the market so that it functions more effectively and efficiently in providing a steady and reliable flow of capital from investors to state and local government borrowers. Expanded investment interest in state and local government securities also provides a buffer against fluctuating investment demand and protects borrowers and investors from volatility in the marketplace. That market, however, like other markets, is affected by shifts in national monetary policy, changes in federal fiscal policies and financial shortfalls caused by deteriorating economic conditions. For example, recent federal tax code changes in the alternative minimum tax and the bank interest deduction, coupled with a decline in bank profitability, have reduced dramatically commercial bank demand for state and local government securities. In 1979, commercial banks held 42.2 percent of outstanding state and local government bonds. At the end of 1989, the Federal Reserve reported that percentage dropped to 16.8.
If the Congress considers proposals to permit investment of surplus Social Security trust funds in state and local government securities, the Government Finance Officers Association could support such proposals if two concerns form the basis of discussions surrounding the enabling legislation. The first is a commitment that the sole purpose of the diversified investment authority is to protect the Social Security trust funds and maintain the funds' earnings in accordance with prudent trust funds management and sound investment practices. This is consistent with GFOA policy regarding state and local government retirement plan investment earnings. That policy maintains that the primary responsibility of a pension plan and its fiduciaries is to provide promised benefits to its members. To meet this responsibility, part of the funds used to pay these benefits could be derived from earnings obtained through the prudent diversification of investments. Funds should be invested at a reasonable level of risk and rate of return.
The second concern is that the diversified investment policies and practices must not change or interfere with the operation of the private market for state and local government securities. There should be no domination or disruption of the market for state and local government securities by the trust funds, for any reason, and state and local governments should be protected against any loss of autonomy in the structuring and marketing of their debt or any increase in borrowing costs or the imposition of other restrictions on the market as a result of the investment of Social Security trust funds in state and local government securities.
Adopted: June 4, 1991 - Back to Top
To plan for the long-term management of all municipal solid waste (MSW) generated within their boundaries, state and local governments have enacted laws and ordinances or taken other legal action to allow them to exercise flow control over solid waste generated by residential, commercial and institutional sources. These laws, ordinances and other actions are needed to hold down costs and to ensure that the facilities are able to operate near capacity.
The Supreme Court in C. & A. Carbone v. Town of Clarkstown, NY has invalidated a flow control ordinance that required MSW to be directed to a specific solid waste facility for processing. The Court said the flow control ordinance was unconstitutional because it violates the Commerce Clause. The Court maintained that the ordinance discriminated against interstate commerce by allowing only a favored operator to process waste that was within the town limits. This decision significantly limits state and local governments' ability to implement comprehensive waste management plans and to meet their other health and environmental responsibilities. In particular, the decision will impair the ability of jurisdictions to raise sufficient revenues to finance such programs through user charges rather than general taxes if the flow control tool is not available to them. Furthermore, the decision may undermine the security for numerous existing governmental projects and billions of dollars in outstanding solid waste bonds to the detriment of issuers, citizens, and bondholders alike.
The Government Finance Officers Association supports federal legislation on waste flow control that will allow governmental entities to continue to carry out their responsibility to manage municipal solid wastes within their boundaries. Such legislation should provide that
- existing state or local government flow control laws, ordinances and other legal provisions granting waste flow control authority and any existing debt secured under such laws or ordinances should be recognized;
- flow control authority should extend to municipal solid waste generated from all sources; and
- the designation of any facilities in the future under an ordinance or other legal action authorizing flow control should provide ample opportunity for all interested parties to have their facilities considered for designation.
Adopted: June 7, 1994 - Back to Top
The Federal Role in Investment in Infrastructure Financing
The Government Finance Officers Association (GFOA) supports greater investment in public infrastructure and recommends a renewed commitment on the part of the federal government to promote, encourage and participate in investment in infrastructure and other public capital facilities. Various mechanisms have been proposed for ways in which such a commitment could be carried out. Among them are proposals for the
- creation of a new category of tax-exempt bonds for the financing or refinancing of infrastructure facilities called "public benefit bonds,"
- designation of certain tax-exempt bonds as "mandated infrastructure facility bonds," and
- establishment of a national corporation that would make loans to and purchase debt and equity securities of governments and public-private partnerships as a means of leveraging federal resources with other public and private resources.
Public benefit bonds would be free of the restrictions on tax-exempt financing contained in the federal tax code and, if purchased by pension plans, interest received could be treated as tax free upon distribution to plan members at retirement. Mandated Infrastructure Facility (MIF) Bonds would provide relief from some of the federal restrictions on tax-exempt bonds used to finance facilities that are built in response to a federal mandate. The corporation, called the National Infrastructure Development Corporation, would be a wholly owned, self-supporting government corporation that would, after a period of transition, become a government-sponsored enterprise with the expectation that pension plans would be the initial purchasers of the securities of the corporation. GFOA has long supported the removal or modification of overly burdensome restrictions, particularly for infrastructure financing purposes. However, it has several concerns about the public benefit bond proposal and does not support it because the rules governing such bonds would circumvent an already existing body of laws governing the issuance of tax-exempt bonds and provide opportunities for abusive transactions.
As an alternative, GFOA supports designating certain tax-exempt bonds as mandated infrastructure facility bonds to provide more flexibility to governmental entities for the construction, renovation or rehabilitation of infrastructure facilities. This would be accomplished for governmentally owned infrastructure facilities through the easing of restrictions that are present in the current laws governing tax-exempt financing and through targeting the use of mandated infrastructure facility bonds to facilities that are mandated by federal law or federal regulations. While GFOA believes that all governmental bonds should be accorded the treatment that is proposed for MIF bonds, it proposes this new category of public purpose tax-exempt bond so state and local governments will be able to use debt in a more efficient and economic manner in order to comply with federal infrastructure mandates.
GFOA questions whether the establishment of a new, national level entity to provide federal resources for infrastructure financing is good public policy and would meet the financing needs of state and local governments, and accordingly opposes its establishment.
Adopted: June 13, 1995 - Back to Top
The strength and stability of our nation's securities markets depend on investor confidence in the integrity, fairness and efficiency of these markets. To maintain this confidence, investors must have effective remedies against those persons who violate the antifraud provisions of the federal securities laws. These remedies are found in the system of private litigation, which includes class action suits.
State and local governments participate in the securities markets both as investors of pension funds and temporary cash balances as well as issuers of municipal debt. Therefore, they have an interest in preserving well-established and vital investor rights and protecting themselves from unwarranted and expensive litigation. A meaningful right to seek recovery against those who engage in securities fraud is an essential supplement to SEC enforcement activities and an important deterrent against securities law violations. State and local governments also support improvements in the litigation process that will safeguard against frivolous litigation and abusive practices by participants in the process.
Numerous reforms have been proposed to streamline the federal securities litigation process in response to the concerns of those persons who believe there is a litigation explosion and to address important issues raised in recent Supreme Court decisions. The Government Finance Officers Association (GFOA) believes it is important to move cautiously in reforming the litigation system, however, so that an appropriate balance can be found that ensures the rights of investors and responds to the need to correct flaws in the litigation process.
In general, GFOA supports reforms in the litigation process that preserve investor protection and continue to serve as a deterrent to securities fraud violations, while at the same time discouraging frivolous lawsuits. In particular, the GFOA supports
- the creation of investor rights to pursue private actions against persons who violate appropriately clear standards in aiding and abetting securities fraud,
- an extension of the statute of limitations to provide a fair and reasonable period of time to file a securities fraud case,
- modifications to the securities litigation process to eliminate frivolous suits early in the process and to assure that the interests of plaintiffs' attorneys are consistent with their clients' interests, and
- appropriately allocating the potential financial liability faced by defendants in securities fraud litigation cases, including providing defendants with a right to obtain a contribution from their co-defendants.
Since state and local governments have a vital interest in improving the capital formation system, protecting investors and deterring frivolous lawsuits, GFOA supports limited and targeted reforms in the system of federal securities litigation.
Adopted: June 13, 1995 - Back to Top
State revolving loan funds (SRFs) are loan programs that are capitalized by federal grants, state appropriations and dedicated revenues. States use the funds to provide a range of financial assistance to local governments, including loans, grants and credit enhancement. SRFs are used to finance facilities for wastewater treatment. They are authorized for highways, bridges, tunnels and have been proposed for safe drinking water facilities.
Interest in and reliance on state revolving loan funds increased significantly since 1987 when amendments to the Clean Water Act replaced the Environmental Protection Agency's Construction Grant Program with a State Water Pollution Control Revolving Fund Program. The Intermodal Surface Transportation Efficiency Act of 1991 permitted states to establish a revolving loan program to support the development of public or private toll facilities and Congress considered the establishment of a revolving loan fund program for safe drinking water facilities in 1994.
The Government Finance Officers Association (GFOA) supports the establishment and use of state revolving loan fund programs because they are flexible financing tools that assist local governments in paying for public capital facilities and are adaptable to varying state and local government needs. Additionally, SRFs complement other federal financial infrastructure assistance programs.
With the growing popularity of revolving loan funds, GFOA has undertaken a review of these programs to determine if they are performing effectively and meeting the needs of local governments. Accordingly, GFOA makes the following recommendations to federal and state officials on ways such programs can be improved or structured differently to increase their usefulness for local governments.
Recommendations to the Federal Government
The following recommendations concerning state revolving loan funds are directed to the federal government:
- reauthorize the existing State Water Pollution Control Revolving Loan Fund and ensure sufficient overall federal funding levels to address the widening gap between needs and available resources for infrastructure facilities,
- permit revolving loan fund programs to be expanded for such purposes as safe drinking water and to include financing for other appropriate types of infrastructure facilities,
- encourage cooperation among programs that have similar objectives such as financial assistance to hardship communities for water or sewer projects,
- design any new revolving loan fund programs so that states and their beneficiary communities have the necessary flexibility to structure each state's program to meet the particular needs of that state and its communities,
- exempt state revolving loan funds from the arbitrage rebate restrictions so that the funds can retain and lend interest earned on the funds,
- eliminate overly restrictive statutory and regulatory requirements such as limitations on administrative costs and loan maturities,
- evaluate program performance by emphasizing outputs and impacts,
- eliminate requirements for state certifications such as those addressing the economic viability of projects and compliance with other federal requirements,
- limit the applicability of cross-cutting requirements and unrelated programmatic requirements on revolving loan funds,
- encourage states to develop specific policies for financing projects in small communities,
- encourage states to establish objective standards for determining economic hardship and develop specific policies for addressing such hardship,
- recognize the needs of larger jurisdictions and ensure that such jurisdictions have adequate opportunities to participate in state revolving loan funds,
- recognize the impact of administrative costs on all levels of government,
- provide a role for local officials in designing project prioritization systems and selecting projects, and
- assist states and localities by providing cost-estimating models, technical assistance and training.
Recommendations to State Governments
The following recommendations concerning state revolving loan funds are directed to state governments:
- work with local officials to design the most appropriate revolving loan fund structures for the state, taking into account the needs of different classes of users as well as overall state requirements,
- provide additional state resources to revolving loan funds and develop specific policies to assist particular classes of users,
- provide a process for local government officials to work with state officials to set SRF program priorities and to select projects,
- limit unrelated programmatic requirements on revolving loan funds,
- address the needs of economically distressed communities, especially where revolving loan funds are leveraged, by providing subsidized interest rates, grants and credit assistance but continue to maintain some level of local contribution to projects, and
- perform outreach activities and provide assistance to local governments, especially those without adequate financial and technical expertise.
To keep pace with our nation's infrastructure needs, multiple strategies are called for to stimulate new infrastructure investment opportunities, including state revolving loan funds. To improve this financing tool, GFOA urges federal, state and local government officials to work together to ensure that revolving loan funds are sufficiently flexible and appropriately funded.
Adopted: June 13, 1995 - Back to Top
The Constitution assigns certain responsibilities to the federal government and preserves state prerogatives in other areas. In some cases, federal and state governments share responsibilities. However, the role of the federal government has not been as regulator of state or local government financial or securities policies. Such intervention or preemption of the legitimate role of state authorities would be a drastic departure from the principles of federalism and would be an encroachment on state sovereignty.
One area in which federal and state governments share responsibility is the protection of public funds invested in the securities markets. Investor protection includes the enactment and enforcement of securities regulations as well as an assurance of meaningful access to the judicial system to provide effective remedies against those who violate state or federal securities laws or common law fiduciary responsibilities.
State and local governments participate in the securities markets both as investors of pension funds and temporary cash balances as well as issuers of municipal debt. They therefore have an interest in preserving well-established investor rights as well as protecting themselves from unwarranted and expensive litigation. States protect their public funds through the enactment of state investment statutes and state securities laws that are designed to respond to specific identifiable state needs, and by permitting private rights of action under securities and contract law or common law trust principles.
Recent changes in the federal securities laws have erected substantial new hurdles for both access to federal courts and the remedies available for aggrieved investors by imposing stringent pleading requirements, restricting discovery, eliminating joint and several liability, and permitting a safe harbor for forward looking statements. In many cases, state private rights of action now remain the only method of obtaining recovery for defrauded investors by permitting liability for aiding and abetting wrongdoing, joint and several liability, and reasonable statutes of limitations for the filing of claims. In addition, many causes of action do not depend on an alleged violation of state or federal securities laws, but on state contractual or common law fiduciary violations long recognized as state prerogatives.
The Government Finance Officers Association (GFOA) believes that state laws and access to state courts serve as deterrents to securities and contract law and fiduciary duty violations. GFOA supports the rights of states to protect public investors, and opposes federal efforts to preempt state laws regulating investments and securities transactions, as well as those designed to preempt contractual rights and other common law protections for public investors and their taxpayers. In addition, GFOA opposes federal efforts to further limit access or remedies provided by state courts for defrauded public investors seeking recovery.
Adopted: June 3, 1997 - Back to Top
Federal Preemption of State and Local Government Taxing Authority
The U.S. Constitution assigns certain responsibilities to the federal government and reserves the balance to the states. When the federal government preempts the rights of states and local governments to determine their own tax policies, it violates the principles of federalism. State and local governments must guard against the preemption of their Constitutional authority, including the power to regulate, tax, and charge enterprises that operate in their jurisdictions. Where the federal government has a legitimate policy concern, it should work with state and local governments, who are partners with the national government in our federal system.
State and local governments strongly support access to reasonably priced technological advances and appreciate the concerns regarding the effect that taxation may have on the fiscal health of emerging and changing industries. However, state and local governments' autonomy and the ability to meet the needs of their citizens must be preserved along with their taxing authority.
Proposals to limit the ability of state and local governments by placing a moratorium on state and local taxation is a significant infringement on state and local government authority and undermines the legitimacy of the partnership among the three levels of government. In addition, the prohibition of a legitimate source of revenue prevents state and local governments from accommodating changes in industry within their jurisdictions and reduces their flexibility to respond to changes in circumstances by adjusting their sources of revenue.
The Government Finance Officers Association (GFOA) opposes legislation that fails to preserve the right of state and local governments to enact and administer their own tax laws without intervention from or preemption by federal authorities. GFOA supports efforts of the federal government to work with emerging and changing industries such as computer services, telecommunications and utilities, as well as state and local governments, in finding a mutually beneficial way to address concerns over taxation.
Adopted: June 3, 1997 - Back to Top
Efforts are underway at the federal and state levels to introduce competition in the electric utility industry through restructuring to meet market and consumer pressures for lower cost electricity. The variety of restructuring proposals will have significant impacts on state and local government revenues, as well as on the status of outstanding and future tax-exempt debt and stranded costs associated with the financing of public power utilities. Underlying concerns about the sovereignty of state and local governments in this environment have also risen.
Investor owned electric utilities contribute to state and local government revenues in several ways, including (1) property taxes, (2) gross receipt taxes, (3) income and franchise taxes, and (4) sales and use taxes. Publicly owned electric utilities may pay certain property, franchise and sales and use taxes and may make payments in lieu of taxes to state and local governments.
Most restructuring proposals include the separation of the three main elements of the industry - generation, transmission and distribution. Competition would lead to a less income predictability for electric suppliers and affect the value of their property. In addition, customers would be able to purchase electricity from out-of-state marketers, which would affect states' tax bases.
State and local governments also have concerns regarding the tax-exempt status of debt used to finance public power facilities. Publicly owned facilities are generally financed using tax-exempt debt because they are nonprofit governmental organizations. Proposals already discussed range from those placing severe restrictions on the use of tax-exempt debt, both outstanding and future, for public power facilities, and taxing revenues of public power utilities, to those offering a range of options to publicly owned utilities making the transition to a competitive marketplace, while grandfathering outstanding debt from private use limits but placing some limitation on its use for new facilities. The recovery of stranded costs - noneconomic investments in generation facilities that would not otherwise be recovered under a competitive system - also present challenges to state and local governments.
Finally, issues regarding the sovereignty of state and local governments underlie each of the above. Many states have already enacted their own restructuring laws. In addition, state and local governments have traditionally been the regulators of the electric utility industry; have traditionally enacted and administered franchises and taxes relating to utilities; have the right to use tax-exempt debt to finance infrastructure facilities that they own, control and operate and have the authority to control the use of public rights-of-way.
The Government Finance Officers Association (GFOA) supports the following principles with regard to federal restructuring of the electric utility industry:
- Congress and the Administration must work with state and local governments in efforts to restructure the electric utility industry. Federal action must not preempt state and local government authority. Congress must respect state actions already taken in furtherance of electric utility deregulation.
- Because of the severe impact restructuring will have on state and local government revenues, state and local governments must retain their authority regarding zoning, services areas, the issuance of franchises, the determination of the appropriate kind and level of taxation, if any, to be imposed on electric utilities, and management of their rights-of-way and appropriate compensation for their use.
- Federal legislation must preserve the tax-exempt status of outstanding debt issued for publicly owned electric facilities, and provide publicly owned utilities with continued exemption from federal income tax.
- States should continue to have the clear authority to determine costs that are stranded or made unrecoverable by retail competition and to provide for recovery of those costs, if at all, as the state deems it necessary or appropriate.
Adopted: May 25, 1999 - Back to Top
Tax officials are always seeking new ways to collect delinquent tax revenues in order to fund local government services. Many States currently permit local governments to submit their delinquent accounts to the State for offset against any State tax refund issued or any lottery winnings. Prior to issuing the taxpayer a refund, the State checks to see if there are any claims submitted by a local government. If there are any, the State holds up the refund pending notice to the taxpayer, and, if necessary, pays the refund to the locality to resolve the local tax obligation. In many states, this has proven to be a low-cost, highly effective program.
Currently, the federal Department of the Treasury permits the offset of IRS tax refunds against federal government debts, as well as for past-due child support and for state income tax obligations. This proposed legislation would provide for the offset of all State and local government tax obligations against federal tax refunds. The current law, with regard to State income tax obligations, includes several criteria that must be fulfilled. The proposed amendment to expand the setoff program leaves these protections in place with slight modification.
Congress has already authorized the setoff of federal tax refunds for state income tax obligations, and this proposal just expands upon the types of debt and the nature of the governmental creditor to be included in the offset program.
The Government Finance Officers Association (GFOA) believes state and local governments should be permitted to participate in the offset of federal tax refunds. Therefore, the GFOA supports the legislation proposed by Congressman James Moran of Virginia that would permit the offset of all state and local tax obligations against federal tax refunds as described in the proposed bill.
Adopted: June 5, 2001 - Back to Top
The decrease in airline travel ever since September 11th has created a serious financial situation for all airports.
The nation's airports are largely publicly owned either by city, county, state entities or regional public authorities. Because of reduced revenues obtained from Passenger Facility Charges (PFCs), parking fees, landing fees, rent, and other sources, airports are incurring substantial revenue losses. Additionally, the Airport and Airway Trust Funds that are funded by the federal ticket tax to assist with airport infrastructure projects are also threatened with declining receipts.
The loss of revenue from these sources is affecting the ability of state and local governments and airport authorities to operate airport facilities, meet outstanding debt obligations associated with airport construction and renovation, and continue or initiate planned capital improvement projects. At the same time, substantial airport resources are now being redirected toward enhancing airport security.
Federal government support for airports during these critical times is essential. The GFOA in concert with other state and local government organizations encourages the federal government to adopt the following measures in order to ensure the fiscal well being of the national air transportation system.
- Provide Airports with Immediate Funding to Pay for Increased Security - Airports should be provided with federal reimbursement for the additional costs of security measures mandated by the Federal Aviation Administration (FAA), as well as any subsequent FAA security mandates, with reimbursement covering both accrued as well as ongoing compliance costs. Any federal legislation addressing airport security that imposes additional security measures on airports should include funding mechanisms to reimburse airport operators for increased costs associated with such requirements
- Establish Priority of Airline Payments to Airports - Any commercial air carrier receiving federal assistance, loan or a loan guarantee should be required to pay from such assistance all currently due federal, state or local taxes together with PFCs and all other amounts owed to airports, and continue payments during the life the such assistance.
- Ensure Continued Funding for Current and Future Airport Projects - Because of the sharp decline in revenues, many capital projects that were about to start, or were in progress, cannot move forward without federal financial assistance. It is important that funding is secured for airport capital projects, which will directly stimulate local economies and provide construction and related jobs.
- Provide Greater Flexibility for PFC and FAA's Airport Improvement Program (AIP) Funds Use - Congress should allow airports the ability to temporarily use PFC and AIP funds for security costs and, if needed, to pay outstanding debt obligations.
- Allow Airports to Refinance Debt and Take Advantage of Today's Lower Interest Rates - Much of the approximately $70 billion borrowed by airports over the last few years is in the form of tax-exempt municipal bonds with 20 to 30 year maturities, typically with rates fixed at the time of borrowing. Over the last year, interest rates on tax-exempt bonds have fallen substantially. Unfortunately, current laws do not allow airports to restructure debt and capture savings as many homeowners do by refinancing their mortgages when interest rates drop. As part of a financial stability package, Congress should permit airports to issue advance refunding bonds to take advantage of today's lower interest rates. Allowing airports to refinance debt and reduce interest cost payments will provide additional financial resources to meet their operational, maintenance and security obligations.
- Assure Access to War-Risk Insurance Coverage - Unless airports can continue to obtain affordable war-risk insurance coverage, many will be forced to shut down critical operations because of liability concerns. It is vital that Congress provide some form of relief - whether similar to that contained in the Air Transportation Safety and System Stabilization Act for commercial airlines or outright indemnification, as the Canadian Government has provided its airports - to ensure that airports have continued access to this critical coverage.
Adopted: 2001 - Back to Top
- (formerly known as Taxation of Interstate Mail-Order Sales)
The Government Finance Officers Association (GFOA) is aware that governments have been seriously handicapped in their ability to collect legally-due sales and use taxes on interstate sales because of the 1967 U.S. Supreme Court National Bellas Hess and the 1992 U.S. Supreme Court Quill v North Dakota decisions.
These two decisions deny states and localities the legal authority to require the collection of sales and use taxes by remote sellers that have no physical presence in the taxing state. These decisions have resulted in a loss of millions of dollars in sales and use tax revenue and place local business and out-of-state retailers with a physical presence in taxing states at a serious competitive disadvantage.
State and local revenue losses and the competitive disadvantage of local brick and mortar businesses have been intensified in recent years because of the substantial growth in untaxed Internet or similar out-of-state sales. Many studies and projections demonstrate that e-commerce Internet sales and other types of remote purchases (e.g., booking online travel services which impact transient occupancy taxes, rental car taxes, and business gross receipt taxes) are accelerating at a rapid pace. Thus, uncollected or undercollected taxes could comprise a major share of all tax collection, rendering sales and use taxes ineffective. Ensuring that consumer paid taxes are collected and remitted correctly to the government is vital to maintain tax fairness and transparency.
The GFOA supports legislation that would prevent continued tax revenue losses and remove the competitive advantage now enjoyed by remote sellers. Furthermore, federal legislation should stipulate that online retailers and businesses, just like brick and mortar retailers and businesses, must remit the appropriate local taxes based on the purchase price of the good or service. In developing this legislation, GFOA asks that all changes be prospective.
Recommended for approval by the GFOAs Executive Board, February 22, 2008.
Approved by the GFOAs membership, June 17, 2008. - Back to Top