State Treasurers’ Group Joins Tax Talks on Capitol Hill

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By Che Odom

The National Association of State Treasurers is taking a seat on a U.S. House advisory council with plans to press for the tax exemption for municipal bond interest and improvements to college savings plans.

“We are pleased to join a bipartisan group meant to increase cooperation among local, state, and federal governments,” Ken Miller, Oklahoma’s state treasurer and president of the National Association of State Treasurers (NAST), told Bloomberg BNA. “We will discuss tax reform, and the municipal bond exemption is an important item for us.”

NAST announced Aug. 10 that it was appointed to the advisory council of the House’s Task Force on Intergovernmental Affairs Aug. 9 by Speaker Paul D. Ryan (R-Wis.) and Minority Leader Nancy Pelosi (D-Calif.). The bipartisan council was established this summer to seek input from state and local governments on issues ranging from tax reform to infrastructure.

Talks among congressional Republicans on tax reform continue, but no bill is expected until after lawmakers return in September. Ryan has said he expects the GOP to put forward a tax reform plan by the end of the year. Others have expressed doubt GOP members can get it done by then, saying the real deadline is in 2018 ahead of the midterm elections.

State and local governments have kept a close eye on Washington, particularly in the areas of taxes, health care, and infrastructure, as members of Congress have said they support various measures that would impact state budgets. Those measures include elimination of the federal income tax deduction for state and local taxes, allowing immediate and full expensing of capital investments, and repealing the Affordable Care Act.

Miller said he didn’t expect the advisory council to take a position on these issues, as the bipartisan group will strive to take positions on issues around which they can agree.

Municipal Bonds

The federal exemption for municipal bond interest is an area in which state and local governments are largely in agreement, Miller said. That’s because the bonds are used to finance large public-works projects, such as construction and repair of bridges and roads. They could become an important method for financing some of the $1 trillion worth of infrastructure spending advocated by President Donald Trump.

Commerce Secretary Wilbur Ross, prior to joining Trump’s cabinet, criticized the exemption, calling municipal bonds an inefficient way of paying for projects. Trump, however, reportedly told a group representing the U.S. Council of Mayors in December that he had no plans to end the exemption. And it wasn’t mentioned in the White House’s tax reform one-page outline released in April.

When investors buy municipal bonds, they are lending a local or state government money for a fixed period of time, often to pay for roads, schools, and other construction projects.

Arlington, Texas, for example, is paying off $300 million in bonds used to finance AT&T Stadium, home of the Dallas Cowboys. In Massachusetts, the governmental entity known as MassPort continues to pay for the “Big Dig,” a $24-billion project that placed Interstate 93 under the city of Boston.

In exchange for an investment, the local or state governments pay the investor interest throughout the term of the bond. Currently, interest isn’t taxable.

The investor is also entitled to the principal of the bond.

“State and local governments will want to preserve the existing rule for tax exemption of municipal bond interest because to eliminate it would increase the cost of borrowing,” Charles S. Henck, a Ballard Spahr LLP partner who practices in public finance and tax law, told Bloomberg BNA.

Advisory Council

The advisory council will take up issues concerning tax reform, as well as higher education savings, rising state pension costs, and promoting financial literacy, all issues important to NAST, Miller said.

NAST is joining the twelve organizations already on the council, which is scheduled to meet again after Congress’ August recess, The other groups are:

  •  American Legislative Exchange Council;
  •  Council of State Governments;
  •  International City/County Management Association;
  •  National Association of Counties;
  •  National Association of Towns and Townships;
  •  National Congress of American Indians;
  •  National Conference of State Legislatures;
  •  National Governors Association;
  •  National League of Cities;
  •  State Policy Network;
  •  U.S. Conference of Mayors; and
  •  Western Governors’ Association.

To contact the reporter on this story: Che Odom at COdom@bna.com

To contact the editor responsible for this story: Jennifer McLoughlin at jmcloughlin@bna.com

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