Municipal Bond FAQ
1. Do State and local governments really invest in infrastructure?
Yes, in fact, the Congressional Budget Office found that three quarters of all public infrastructure projects are built by the states and local governmental entities and tax-exempt bonds are the primary financing mechanism for these essential projects. Municipal bonds have a very strong repayment record – much higher than corporate bonds – allowing state and local governments to borrow responsibly for capital projects, and providing a safe and reliable investment option for our citizens.
2. What is the direct impact on taxpayers?
The cost to maintain the tax exemption on municipal bond interest in 2015 was $35.2 Billion (https://www.jct.gov/publications.html?func=startdown&id=4857) . This cost supported a total volume of $362 Billion (Thompson Reuters Data) of new building and maintenance of existing infrastructure in 2015 alone - a ten-to-one payoff for the investment! This has allowed state and local governments to finance more than $4 trillion in infrastructure investment over the last decade through the capital markets.
3. What do tax-exempt municipal bonds finance?
Tax-exempt municipal bonds finance highways, bridges, transit systems, airports, water and wastewater systems, schools, higher education facilities, and many other basic infrastructure projects. Tax-exempt bonds bring affordable capital to these projects, saving an average of 25 to 30 percent on interest costs compared to taxable bonds. In an age of constrained federal and state budgets, the ability to save billions of dollars on infrastructure financing is critical for state and local governments and their taxpayers. If issuing affordable debt is no longer an option and unfunded projects begin to further mount, state and local governments will have to seek additional infrastructure support at the federal level through federal highway legislation and other sources.
4. How much will state and local governments need to invest in infrastructure to keep the US economy moving?
It has been estimated that at the combined state and local levels, we must spend $3.6 trillion by the year 2020 to meet our infrastructure needs, and the importance of building and maintaining our public infrastructure has never been more apparent.