President’s Proposed Tax Increase on Municipal Bonds Will Raise Costs for Public Power Customers, March 4, 2014

FOR IMMEDIATE RELEASE
CONTACT: Michael Catanzaro
March 4, 2014
michael.catanzaro@fticonsulting.com
(202) 346-8841

Washington, DC — Large Public Power Council (LPPC) Chairman Bill Gaines released the following statement in response to the proposed cap of the tax-exemption on municipal bonds that was included in the President’s FY 2015 budget:

“The president’s proposed 28 percent cap on tax exemption for interest on municipal bonds would act as a tax increase on  state and local governments and other municipal entities—including publicly owned utilities—and will negatively impact investment in critical infrastructure. While intended to limit the benefit for higher-income earners, the proposal would hurt all Americans–and will directly impact the more than 45 million people served by public power systems throughout the country.

“The proposed cap will increase borrowing costs by up to 25 percent for issuers of municipal bonds, making it more difficult to invest in critical infrastructure. In the case of not-for-profit public power systems, the higher costs will ultimately be passed through in higher electricity rates, which will disproportionately harm the customers who least can afford it—fixed- and low-income households and small businesses.

“Large public power systems alone are expecting to issue nearly $20 billion in tax-exempt bonds over the next five years to finance the building and improvement of generation, transmission and reliability facilities. The president’s proposal will constrain our ability to build vital infrastructure projects and to keep power prices affordable for the customers we serve.

“The president is encouraging Congress to make investments in infrastructure, but proposing to weaken the most important tool that state and local governments have for financing those investments. The president’s America Fast Forward Bonds program might be an option for attracting private investment in infrastructure. However, it should not be a replacement for the stable and mature municipal bond market.

“Congress should maintain the current tax exemption on municipal bond interest so that public power can continue to invest in this critical infrastructure and maintain affordable power prices for our customers. LPPC has also been involved in the Ways and Means Committee working group process to highlight our concern that taxing municipal bonds for the first time in history would be counterproductive.”

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LPPC represents 26 of the largest locally owned and operated not-for-profit electric systems in the United States. Our member utilities are located in 12 states and Puerto Rico and own and operate more than 86,000 megawatts of generation capacity and more than 35,000 circuit miles of high voltage transmission lines. LPPC member utilities supply electricity to some of the largest cities in the country including Los Angeles, Seattle, Omaha, Phoenix, Sacramento, Jacksonville, San Antonio, Orlando and Austin.