NEW YORK -- The National Association of State Treasurers is working with Rep. Jason Chaffetz, R-Utah., on a letter to be sent to the House Ways and Means Committee chairman that would make the case for conservatives to preserve the municipal bond tax exemption, a consultant to NAST said Friday.
The letter, which is expected to be sent to Rep. Dave Camp, R-Mich., the week of Dec. 7, "lays out the conservative arguments of why muni bonds are good, and that's really important in the House because as you all know, the House is dominated by conservatives," Susan Hirschmann, government affairs consultant to NAST and partner at Williams & Jensen, PLLC , told attendees of the group's issues conference here.
The House has had a Republican majority since 2011, and it will have an even larger majority when the new Congress starts in January. Rep. Paul Ryan, R-Wis., is slated to succeed the retiring Camp as chairman of the tax committee.
The letter will argue that if municipal governments can't continue to use tax-exempt bonds to finance projects, they will have to rely more on the federal government, Hirschmann said.
Chaffetz is the incoming chairman of the House Oversight and Government Reform Committee. A number of other Republican House members have agreed to sign the letter. They, include: Bradley Byrne of Alabama, Dave Joyce of Ohio, Phil Roe of Tennessee, Mike Coffman of Colorado, Mo Brooks of Alabama, Lynn Westmoreland of Georgia, Bill Posey of Florida, Bob Gibbs of Ohio, Matt Salmon of Arizona, Walter Jones of North Carolina, Spencer Bachus of Alabama and Rob Bishop of Utah.
Earlier this year, Camp released a tax-reform proposal that would impose a 10% surtax on muni interest for high earners. While Camp is retiring at the end of the year, "this is a letter that we'll use in our lobbying and it'll be on the record to show conservative pushback and conservative support for muni bonds," Hirschmann said.
Hirschmann said that when explaining the importance of the muni exemption to members of Congress, state treasurers need to "go tell the story, not just in dollars, but in what those dollars are spent for and what does it mean to your constituents."
Elizabeth McCarthy, chief financial officer of the Port Authority of New York and New Jersey, told conference attendees the story of how the muni exemption is important for the authority.
In February, the Port Authority adopted its 10-year, $27.6 billion capital plan, nearly half of which is capital spending to ensure the "state of good repair" for capital projects. The plan assumes that the authority will fund about $9 or $10 billion of it with tax-exempt debt, McCarthy said.
If the authority were unable to use tax-exempt debt, "it would have a major impact on our ability to maintain, redevelop and modernize our facilities," she said.
Hirschmann and Michael Zezas, executive director of research at Morgan Stanley, also told the group that comprehensive tax reform is unlikely during the next two years.
But munis could be at risk in "fiscal deals," and state treasurers need to make sure that the muni exemption doesn't become a "pay-for" in a deal that would result in revenue losses, Hirschmann said.
Incoming Senate Majority Leader Mitch McConnell, R-Ky., is skilled at cutting deals, and he and House Speaker John Boehner, R-Ohio, work well together. The incoming chairman of the Senate Finance Committee -- Orrin Hatch, R-Utah - also has record of bipartisan deals, as does Ryan, who wants to accomplish something as the House Ways and Means Committee chairman, Hirschmann said.
Zezas noted that Ryan and President Obama have both expressed an interest in corporate-only tax reform. Under corporate tax reform, the corporate rate would be lowered, and to do that they will have to repeal tax preferences, one of the largest of which is the muni exemption.
