The Government Finance Officers Association of the United States and Canada, has consistently defended the exemption of municipal bond interest from Federal and applicable state income taxation. This historic exemption from taxation of interest on state and local government bonds reinforces our nation's federal system and provides major advantages to communities across America, including:

• Lower costs to fund government infrastructures and services. Hindrance of state and local governments ability to fund vital public infrastructures and services through tax-exempt financing would require other methods of finance (increased property, sales, and other local taxes), and/or a reduction in essential services;
• Tax-exempt financing grant state and local government freedom from the uncertainties of the annual Congressional appropriations process in funding capital needs or any portion of their interest costs; and
• Efficient access to capital markets.

Although the primary beneficiaries of a particular bond issuance are the citizens of the issuing community, the nation as a whole has a vital interest in maintaining adequate public facilities to support a dynamic economy. The national interest is well served by keeping state and local government borrowing costs low, thereby providing an incentive for public investment in infrastructures and other facilities.

The GFOA opposes any federal legislation that dimishes the value or impairs the use of tax-exempt bonds. Federal law should not undermine the municipal securities marketplace, nor threaten the tax-exempt status of these investment instruments. The GFOA supports federal legislation that preseves the benefits of tax-exempt financing to state and local governments.

• Publication date: May 2003