In recent years, federal legislation has been proposed to restrict the issuance of tax-exempt bonds so as to accomplish objectives that are totally unrelated to the proposed restrictions. Examples of recent proposals imposing unrelated restrictions are

• a bill to deny the use of tax-exempt bonds to finance construction projects if one percent or more of the project's cost is used to pay for services performed by Japanese individuals or businesses, and
• a bill to reduce the private-activity bond volume cap to zero for states that do not comply with a federal law requiring state assistance in paying medicare expenses for the elderly poor.

Tax-exempt municipal bonds are the basic tool used by the states, cities, counties and towns to fund the capital improvements necessary to provide utilities, roads and bridges, airports, health care, education, housing and other public services.

The Government Finance Officers Association has long recognized the federal government's interest in preventing abusive tax-exempt bond transactions. However, the imposition of restrictions on tax-exempt bonds whose sole purpose is to achieve objectives totally unrelated to the proposed restrictions is an inappropriate use of federal regulatory power. Such restrictions would serve only to jeopardize state and local projects and increase project costs.

Therefore, the Government Finance Officers Association opposes restrictions on the issuance of tax-exempt bonds that seek to further objectives unrelated to the proposed financings regardless of the merits of those objectives.

• Publication date: May 1990