Debt Management

Non-Governmental Bonds

Tax-exempt bonds are the primary source of funds for the traditional capital needs of state and local governments. The tax-exemption provides significant cost savings to state and local governments
through low interest rates related to the debt issued to fund those capital needs.

The GFOA defends the issuance of tax-exempt bonds when they are used for essential public purposes, including economic development efforts to address serious economic need.

For over 40 years, the GFOA has frequently expressed concern with the effect that a substantial increase in the supply of tax-exempt bonds for private use could have on interest rates that state and local governments must pay to finance government services such as transportation, education, and public utilities. While noting that various tax acts have imposed many restrictions on the kinds of private activity for which tax-exempt bonds may be issued, the GFOA still believes that the permitted use of tax-exempt bonds requires careful review.

The GFOA generally opposes the issuance of tax-exempt bonds that exclusively benefit private businesses. To the extent that tax-exempt financing is made available to private users, suitable restrictions remain necessary in order to limit these financings to essential public purposes.

The GFOA does support utilizing the tax exemption as part of a jurisdiction’s economic development strategy only as long as the issuance of tax-exempt bonds is used in conjunction with an economic plan that is developed in response to serious economic need determined by the issuer.

The GFOA opposes defining bonds that provide essential governmental services such as education, health care, airports, ports, water and sewer facilities, etc., as private activity bonds. These types of financings should be correctly categorized as governmental bonds. In addition, the private activity bond rules should not prevent state and local governments from taking advantage of the benefits of public/private partnerships.

  • Publication date: June 2007