Tax-exempt bonds are the primary mechanism through which state and local governments raise capital to finance a wide range of essential public projects. The volume of municipal bond issuance for the period from 2007 to 2017 amounted to $3.6 trillion. Communities across the country would be negatively impacted if federal tax policy reduced the financial power of state and local governments to meet their capital needs. This further exacerbates the current situation faced by state and local governments in continued reductions or elimination of federal assistance of various kinds over the years, including categorical grants and general revenue sharing, and seeing a rise in costs due to federal mandates (legislative or regulatory requirements imposed by the federal government upon states and localities). No federal program has or would be able to finance all the capital needs across the country. For over 100 years, the municipal bond market has worked fairly and efficiently to address these needs, whether it is in our largest states and cities or the rural areas across the United States.
This issue brief provides more information on the current status of federal tax policy, potential changes, and their impact on infrastructure.