WASHINGTON — The National League of Cities should concentrate on highlighting the importance of tax exemption for municipal bonds, an official with the National Governors Association said Monday.
"I'd do it tomorrow. I'd do it a year from tomorrow. I'd do it two years from now," NGA deputy director Barry Anderson said at a panel at the NLC's Congressional City Conference.
President Obama's fiscal year 2015 budget includes a 28% cap on the value of the tax exemption for munis, and the tax-reform proposal from House Ways and Means Committee Chairman Dave Camp, R-Mich., similarly caps the value of the exemption at 25%. The Senate Finance Committee's new chairman, Sen. Ron Wyden, D-Ore., is expected to draft his own tax reform legislation. He has a reputation of reaching across the aisle to work to achieve consensus.
While fundamental tax reform is unlikely to happen until after the next presidential election, it will take place at some point, Anderson said. And when tax reform occurs, "some kind of changes are inevitable" to munis and the deductions for state and local taxes, he said.
When NGA talks about the importance of the muni exemption, they always talk about "infrastructure, infrastructure, infrastructure," Anderson said. How can Congress or the president curb the muni exemption if they also believe there's an infrastructure crisis? he asked.
But Anderson was not as concerned about Camp's proposal also eliminating the ability for issuers to issue tax-exempt private-activity bonds after 2014. NGA isn't focusing its efforts on preserving the exemption for PABs because it's a smaller part of the market and some states don't take advantage of it, he said.
"It looks like that might be something that we're going to have to give up," he added.
Obama's fiscal 2015 budget would provide less funding for the community development block grant program than Congress has enacted for this year. The grants are used for affordable housing, social services and economic development. National Housing Conference president and chief executive officer Chris Estes was concerned about Obama's proposed funding reduction to the CDBG program, saying that program gets targeted for cuts because most of the Department of Housing and Urban Development budget is tied up in renewing rental assistance, and if that doesn't get funded, people lose their homes.
Mark Funkhouser, director of the Governing Institute and a former mayor of Kansas City, Mo., cautioned against ignoring Obama's budget request, saying it isn't moot despite the fact that it won't become law. "It sets the tone of the conversation," he said.
Estes and Anderson said that generally, it's a positive development that the congressional appropriations process is working more normally this year than it did last year. Anderson said this year, state and local governments are in a better position because they do not have to deal with the threat of a federal government shutdown and a standoff over the debt limit.
Funkhouser said there should be a mechanism that would show the effects of the federal budget on state and local governments, so that the federal government is not completely oblivious to how its actions impact municipalities. This idea was one of the recommendations in the final report of the State Budget Crisis Task Force, released in January.
