WASHINGTON — The President of the U.S. Conference of Mayors said Thursday that saving tax-exemption is one of the highest priorities of the group.
Speaking to reporters here at the group’s 81st winter meeting, Michael Nutter, the mayor of Philadelphia, said “tax-exempt financing is critically important to cities for building infrastructure” and that capping tax-exemption would be “a problem for us.”
A 28% cap, he said, would raise cities’ borrowing costs and be detrimental to their finances, projects and jobs.
Meanwhile, during a panel session on metro economies, the managing director of a broker dealer group said the municipal bond market “dodged a bullet” when the 28% cap on the value of tax exemption was not included in the fiscal cliff agreement adopted Jan. 1.
But “we are not out of the woods yet,” said Michael Decker, co-head of the municipal securities division at the Securities Industry and Financial Markets Association.
Decker said the 28% cap could still surface as Congress and the administration debate whether to raise the debt limit, stop sequestration or extend a continuing resolution to fund the federal government.
“Even if we get through the next several months, it’s fairly clear that Congress is going to take a stab at broad, comprehensive tax reform” and the 28% cap is likely to be part of those discussions, Decker said.
He pointed out that even though the 28% cap would be a tax on investors, state and local government borrowers would be hurt most because their cost of borrowing could increase by two percentage points.
These governments use munis to finance key infrastructure projects, he said.
This is “what gets lost” in the discussions over the cap, Decker added.
“We are kind of getting hit on both sides,” he said.
Critics complain that tax exemption encourages governments to over-borrow and subsidizes their debt. On the other hand, they also complain that tax exemption benefits the wealthy.
Meanwhile, Greg Fischer, mayor of Louisville, Ky., said during the same panel session that Senate Minority Leader Mitch McConnell, R-Ky., had told him during a meeting that supporters of the 28% cap should worry most about Democrats because they want to hurt rich people.
Fischer later told a reporter that he thinks Republicans are opposed to the cap.
But he urged his fellow mayors to go to Capitol Hill and lobby lawmakers against the cap, Fischer said.
