NGA Vice Chair: Congress Shouldn't Curb the Muni Exemption

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John Hickenlooper, governor of Colorado, left, speaks during a Senate Energy and Natural Resources Committee hearing while Andrew Liveris, chairman and chief executive officer of Dow Chemical Co., listens in Washington, D.C., U.S., on Tuesday, Feb. 12, 2013. The top two members of a Senate committee for energy split over expanding U.S. natural gas exports, mirroring a disagreement between fuel consumers such as Dow Chemical Co. and producers such as Exxon Mobil Corp. Photographer: Andrew Harrer/Bloomberg *** Local Caption *** John Hickenlooper; Andrew Liveris

WASHINGTON — Congress needs to preserve the tax exemption of municipal bonds if it's serious about supporting infrastructure, National Governors Association vice president and Utah Gov. Gary Herbert said.

Herbert and NGA chair and Colorado Gov. John Hickenlooper delivered the group's third annual State of the States Address on Tuesday morning.

"Bonds have financed most every major infrastructure project in this country in the last century," said Herbert, a Republican. "Ending or capping the federal exclusion from income for municipal bond interest would increase the cost of financing infrastructure projects. This would in turn slow future projects and require states and local governments to find alternative sources of revenue."

NGA also wants Congress to pass a long-term transportation reauthorization bill, Herbert said. Currently, reimbursements for state transportation spending from the federal Highway Trust Fund "are at risk as soon as this spring," and federal surface transportation laws and programs are set to expire on May 31, he said.

State funds for transportation increased more than 10% in fiscal 2014, while federal funds declined by more than 1%, said Hickenlooper, a Democrat. These figures were from a report recently released by the National Association of State Budget Officers.

States, including Colorado, have been turning to innovative financing mechanisms like public-private partnerships "that leverage private sector financing and expertise to deliver new public roads, bridges, ports and tunnels at a lower cost and more quickly," Hickenlooper said.

While a long-term transportation reauthorization bill should give states the flexibility to use non-traditional financing methods like P3s, these mechanisms cannot replace federal investment, Herbert said.

He thanked Congress for passing the Water Resources Reform and Development Act last year. The legislation took into account many of the principles that governors wanted to see. "As the bill is implemented, governors are committed to ensuring that key provisions, such as the public-private partnerships for [Army] Corps of Engineers project selection and finance, are developed with input from the states," Herbert said.

The NGA leaders called for Congress to pass legislation that will allow states to require out-of-state online retailers to collect their sales taxes. The NGA's executive committee planned to discuss this "marketplace fairness" issue with President Obama, whom they were scheduled to meet with Tuesday afternoon, Hickenlooper said.

Currently, states can generally only collect sales taxes from online retailers if they have a physical presence in their states. While people are supposed to pay taxes on their online purchases even when retailers don't collect them, customers often do not do so and this requirement is not well-enforced.

The Senate passed a bill in 2013 called the Marketplace Fairness Act, which would have allowed states to require large out-of-state online retailers to collect sales taxes. However, the bill stalled in the House.

"This discussion has been going on for over 15 years. It has strong bipartisan support. It is time - in fact I would say it's past time - for Congress to act and to resolve this issue," Herbert said. He added that while some states have passed laws so that they can collect a portion of the tax, Congress needs to act "to fully resolve this issue at the national level."

Hickenlooper and Herbert delivered their portions of the address on the same day that the new, Republican-controlled Congress began. The leaders said that the new Congress offers a "clean slate."

"This new Congress provides us with a unique opportunity to reauthorize several major programs," Herbert said. "With a backlog of work that has been left undone by the previous Congress, we now have the opportunity for meaningful reform to ensure that state-federal programs work more effectively."  

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