WASHINGTON - The tax exemption for the interest paid on all municipal bonds will cost the federal government an estimated $35 billion in fiscal 2009 and will rise to $39.4 billion in fiscal 2013, according to President Bush's fiscal 2009 budget.
That represents a 12.6% rise over five fiscal years - about the same increase estimated last year for the comparable fiscal 2007 through 2012 period. Still, the new estimates show that the cost of the tax exemption for public-purpose and private-activity tax-exempt bonds in fiscal 2009 will be $5.6 billion less than the $40.6 billion forecast for fiscal 2009 in last year's projections.
It is unclear why the fiscal 2009 estimates are lower than those made a year ago, though some of the difference is attributable to the administration's expectation that far fewer private-activity bonds will be sold for hospitals and other nonprofit health care facility bonds.
For instance, the $3.04 billion of tax-exempt interest from anticipated hospital bonds for 2009 estimate compares with a $4.13 billion estimate made a year ago, a 26.4% difference.
But at least one private economist said the variations appear to be more than just changes involving lower issuance projections for specific categories of bonds. Rather, the considerably lower estimates appear to be the result of new underlying assumptions by the Treasury that suggest the total volume of outstanding debt will drop, spurred largely by a spike in the volume of advance refundings that has occurred over the last two years.
As the call dates approach for the underlying paper on those advance refundings, the underlying bonds will be defeased and the total volume outstanding will drop, said the economist, who did not want to be identified.
"My guess is that revision comes in response to a change in the volume of pre-refunded bonds," he said. "If you assume that the total volume of tax-exempts outstanding is going to drop because a bunch of bonds are going to be called, then your estimation of the total revenue lost to tax-exempts is going to drop also."
Bush's fiscal 2009 budget marks the 15th consecutive year the presidential budget has contained revenue loss estimates for tax-exempts. The tax loss figures routinely appeared in the presidential budgets until 1990 when President George H.W. Bush's administration eliminated them. They were left out each year thereafter until 1990, when the President Bill Clinton's administration restored them in its fiscal 1995 budget. The administration's budget plan also estimates revenue losses from the qualified zone academy bond program will rise to $170 million in fiscal 2009 from $160 million in the current fiscal year, and will remain at $170 million in fiscal years 2010, 2011, and then drop to $160 million in fiscal 2012, and $140 million in fiscal 2013.
The QZAB program, under which tax-credit bonds are issued to finance repairs and renovations of existing school facilities in low income areas, was extended by Congress in December 2006 through the end of calendar year 2007. Congress has not yet reauthorized the program. Congress had authorized $400 million for the program every year for a decade from 1997 to 2007. Some states have left over allocations from 2006 and 2007, which accounts for the estimates moving forward. e_SRitq
