Quantcast
Taxation

GFOA to Launch Grassroots Campaign to Maintain Tax Exemption

The Government Finance Officers Association plans to launch a grassroots campaign to help their members better understand how current threats to tax exemption could adversely affect their governments and what they can do to stave off these threats.

Speaking at its annual winter meeting here, Ben Watkins, chair of GFOA’s committee on governmental debt management and director of Florida’s bond finance division, said the group plans to create a PowerPoint presentation that they would disseminate to members who could then tailor it for their own specific projects.

Several of the slides would educate members about what the tax exempt market is and how it works and what it finances, Watkins said. He encouraged members of the debt committee to set up meetings with congressmen in their home districts and explain to them and their staff what tax-exempt bonds do for governments and how important they are.

“I think that is how we can, through a grassroots effort, be very effective in laying the groundwork so that when the decisions do get made the congressmen and senators have a basic understanding of how important it is to us and can speak up on the subject,” Watkins told committee members.

The GFOA board plans to meet on Thursday to discuss how to come up with a comprehensive packet of tools for their members, said Susan Gaffney, a GFOA consultant and former director of the group’s federal liaison center.

Watkins and Michael Decker, managing director and co-head of the municipal securities division at the Securities Industry and Financial Markets Association, outlined the various threats to tax exemption that could come to fruition as early as this year.

Decker said the industry “dodged a bullet” during the fiscal cliff discussions at the end of 2012, but the issue of curtailing or eliminating tax exemption is not going to go away.

“We came out just fine but there is a serious risk that we could get hit,” Decker said.

As lawmakers look to hash out several of the “mini fiscal cliffs” coming up in the next few months including the debt ceiling, sequestration and the continuing resolution to keep the federal government funded, Decker warned tax exemption could be on the table when lawmakers try to find additional revenues.

One proposal that has gained momentum on both sides of the aisle in Congress and in the White House is to place a 28% cap on the value of tax exemption. This proposal has been around since President Obama first introduced it in his 2011 jobs bill and then again in his 2013 budget.

If a 28% cap was implemented, it would cost issuers approximately 70 basis points, Decker said. A full-blown repeal of tax exemption would cost issuers anywhere from 150 to 200 basis points, he said.

But Decker said the biggest risk the municipal market faces now is comprehensive tax reform, which House Ways and Means Committee Chairman Rep. Dave Camp, R-Mich., has said is his top priority.

While the risk is not zero, it is smaller than it was in December,” Decker said. “My real worry is the focus on tax reform.”

Decker anticipates seeing some tax reform package from Camp as early as this spring or summer and stressed that ahead of any dramatic policy changes, GFOA members are in the best position to deliver their message to Congress to preserve tax exemption.

At the end of the day these decisions are made by a relatively small group of policymakers and GFOA members have to be very strategic in their message to them, Watkins said.

Decker and Watkins stressed that members should try to frame their message to lawmakers in terms of infrastructure investments and the role of tax exempt bonds.

“Everyone wins when you invest in infrastructure,” said one debt committee member.

Julio Morales, director of finance with Huntington Park, California, said that he and other GFOA members should provide practical examples to lawmakers.

For example, if an issuer does a $10 million financing with a 5% interest rate, a 70 basis points change would increase their annual borrowing costs or reduce the project costs by $750,000, Morales said.

“You want to give elected officials a practical example because 70 basis points does not mean anything to them,” Morales said. “You have to tell them you lost 7% to 10% of your borrowing capacity and that it will increase costs.”

Tim Firestine, the chief administrative officer for Montgomery County, Md. who is slated to become GFOA chairman later this year, agreed with Morales and said the group’s message should be simple.

We have to try to convert it in a way that shows elected officials and congressional representatives that changes to tax exemption is going to have an impact at the local level, Firestine said.

JOIN THE DISCUSSION

SEE MORE IN

Comments (0)

Be the first to comment on this post using the section below.

Add Your Comments:
Not Registered?
You must be registered to post a comment. Click here to register.
Already registered? Log in here
Please note you must now log in with your email address and password.

Upcoming Events

Already a subscriber? Log in here
Please note you must now log in with your email address and password.