WASHINGTON — Tax-exempt bonds should not be replaced and should be excluded from any cap on tax expenditures, a municipal bond coalition wrote leaders of Congress on Tuesday.

Municipal Bonds for America (MBFA), a coalition of muni market groups and participants fighting to stave off threats to tax exemption, urged lawmakers not to eliminate tax-exempt bonds as they consider new forms of revenue for tax reform and proposals to avoid the so-called “fiscal cliff.”

“We are writing to urge Congress not to fix what isn’t broken and to maintain the current tax treatment of municipal bonds,” the group wrote in a two-page letter to top Democrats and Republicans on the House and Senate tax-writing committees.

The group highlighted that the federal tax exemption of interest from municipal bonds is nearly 100-years old and “represents a boundary around federal interference with local decisions.”

The letter stated that any cap on tax exemption would increase borrowing costs for state and local governments and “create large losses for existing bondholders, rather than result in additional taxes on the wealthy.”

“The stability of municipal bonds fuels a robust market that reduces financing costs for issuers, who pass the savings on to taxpayers. Tax-exempt bonds are not easily replaced by other financial products,” wrote the MBFA’s 11-member executive committee.

Eight of the committee members met with congressional staff from the tax-writing committees Tuesday, educating them about the importance of tax exemption.

In the morning they met with staff for Rep. Pat Tiberi, R-Ohio., Sen. Rob Portman, R-Ohio, Rep. Dave Camp, chairman of the House Ways and Means Committee, and Rep. Sandy Levin from Michigan, the ranking minority member of the committee.

“The whole idea was to introduce the MBFA in person to these offices and help to the extent that we can and educate them on why the muni exemption is important and who it benefits,” said Mike Nicholas, Bond Dealers of America’s chief executive officer who spearheaded the creation of MBFA.

All of the staff the group spoke with on Tuesday said everything is on the table for tax reform discussions, Nicholas said.

New York City Housing Development Corp., president Marc Jahr is chairman of the MBFA and led Tuesday’s discussions with the congressional staff.

In a brief interview, Jahr said the board  members had “good, thoughtful conversations” throughout the day with congressional staff. However, the staff raised several concerns about tax exemption.

“There was a tremendous concern about the cost of the tax exemption versus the goal on the Republican side of reducing tax rates,” Jahr said.

Staffers also expressed concern about the value of the tax exemption and, in some instances, who receives the benefit, Jahr said. “We are very pleased with the broad base of partners” in MBFA, said Lars Etzkorn, program director for the National League of Cities and a member of MBFA’s executive committee. “We are trying to keep the discussion focused where it should be and not on something that would cost taxpayers more money. It might look good on the federal balance sheet but on the taxpayers’ sheet it will cost them more. That’s the message.”

The meetings come one day after the group unveiled a new website — www.munibondsforamerica.org — which was designed to serve primarily as an online resource for members of Congress and their staff.

MBFA members said some Hill staffers suggested the website contain information that would quantify who benefits from the exemption as well as how a tax credit bond could be used as a supplement.

MBFA now has approximately 30 coalition members after being launched at the beginning of October.

The next steps for the MBFA will be to digest the discussions from Tuesday, consider changes in the website, and make decisions about the types of data and analysis needed so that MBFA can be more effective in this discussion, Jahr said.

Jahr also hopes to broaden the coalition with more market participants before returning to Congress and resume talks.

“The more we talk to folks in Congress and make our case the better off we will be,” Jahr said. “The time to start making this argument clearly is now. We aren’t going to wait until Jan. 1.”

The groups’ letter was sent to Senate Finance Committee Chairman Sen. Max Baucus, D-Mont., ranking minority member Sen. Orrin Hatch R-Utah., as well as Camp and Levin.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.