Why mayors are ‘completely baffled’ by loss of advance refunding

The beginning of Infrastructure Week 2018 presents us with the perfect opportunity to highlight a major blow to community control and to local government infrastructure investment: the repeal of advance refunding of municipal bonds in the Tax Cuts and Jobs Act.

I deeply appreciate that the Tax Cuts and Jobs Act maintained the century-old tax exemption for municipal bonds. State and local governments make more than 75% of our nation’s infrastructure investments, most of them financed with municipal bonds, and the tax law’s preservation of the tax exemption for municipal bonds recognized that the best thing the federal government can do on infrastructure is to first do no harm.

Unfortunately, the tax law’s elimination of the tax exemption for the advance refunding of municipal bonds will do considerable harm. This ill-conceived provision robs local governments of the ability to stretch infrastructure dollars and save taxpayer money by taking advantage of lower interest rates. Between 2012 and 2017, advanced refunding saved South Carolina cities, counties, school districts, universities, and utilities (and their taxpayers and ratepayers) approximately $164 million.

Indeed, I am at a loss as to why the same tax law that recognizes the central role of municipal bonds to our nation’s infrastructure is the same one that eliminated advanced refunding of municipal bonds. I am, to quote one of my fellow mayors, “completely baffled” by the law’s advance refunding provision. Summaries of the tax law offered no policy justification for this provision, making it clear that it was nothing more than a money grab from local governments and local taxpayers to finance tax cuts elsewhere in the bill.

By Steve Benjamin