Three state treasurers are meeting with policymakers and White House officials this week to tell them that curtailing or eliminating tax exemption is not an abstract issue and would have significant adverse impacts for state and local governments.

National Association of State Treasurers’ president and Virginia Treasurer Manju Ganeriwala, Maryland State Treasurer Nancy Kopp and Tennessee State Treasurer David Lillard, secretary-treasurer and chair of the State Debt Network have, a simple message: cash-strapped states and municipalities will have fewer infrastructure projects and higher borrowing costs that will be passed onto taxpayers if tax exemption is restricted.

All three of the Treasurers sat down for an interview with The Bond Buyer this week to discuss tax exemption, the impact across-the-board budget cuts known as sequestration would have on state budgets, and President Obama’s State of the Union address.

Kopp said paying higher borrowing costs would have to be made up “from the local sales tax or property tax that is paid for by the middle class,” Kopp said. “It’s the middle class children who are using the public schools and their parents who are driving on the roads. It’s not an abstract issue. It hits home.”

On Wednesday, Ganeriwala, Kopp and Lillard had 12 meetings on Capitol Hill to talk about tax exemption including with House Majority Leader Eric Cantor, R-Va., House Minority Whip Steny Hoyer, D-Md., and House Speaker John Boehner, R-Ohio. On Thursday, they met with White House officials.

“What we can bring to the members through these meetings is to really personalize it for them,” said Ganeriwala. “Hopefully they can start to connect the dots. We still have to provide the services and build necessary infrastructure. If we don’t, then we are collectively making the economy more sluggish and hurting our long-term economic growth prospects.”

“I think we feel we have an obligation meeting with senators, congressmen and their staff to make sure we do what we can to make clear the impact of what they are doing,” Kopp said, adding she hopes congressional leaders will remember the constituent side of what would come if tax exemption was changed. “We don’t want anybody to go away with the feeling that simply shifting the costs down to the states is somehow helping to build our economy when instead its really helping eat away at it.”

Ganeriwala added that municipal bonds are used to finance crumbling infrastructure, educational facilities, and other core government services, not golf courses or amusement parks.

“Good infrastructure leads to better education and more companies creating jobs,” she said.

All three were encouraged by Obama’s plans to invest in infrastructure in his address to the nation earlier this week. He proposed a $50 billion “Fix it First” program to repair aging infrastructure and create jobs. The treasurers said the proposal was vague and that they expect to see more details in the coming weeks. However, Kopp questioned why the president wouldn’t use the efficient muni bond financing system already in place and enhance that instead of creating new programs.

“The first thing he [Obama] should do is look at the way we do it now, effectively, but don’t kick the underpinnings out from under the present system,” Kopp said.

Lillard, a Republican, said he agrees with the president on the need to set a priority for critical infrastructure as a way to move America forward both from an economic development and job standpoint. But tax exemption is a material part of that agenda.

In Tennessee, roughly all of the state’s new money in its general fund was absorbed by the Medicaid waiver program, Lillard said. “We don’t have extra resources to pay more for debt issuance costs,” he said. “It will restrict the amount of infrastructure the state can build going forward if the exemption on muni bonds is abridged in anyway.”

The treasurers also said they have developed contingency budget plans in the event sequestration or some other significant federal policy decisions occur. Sequestration — $85 billion of across-the-board federal budget cuts — is expected to go into effect on March 1 if Congress doesn’t act.

Maryland’s proposed fiscal year 2014 budget has incorporated both revenue estimates and rainy day funds as a way to cushion the state against the immediate impact of the sequester, Kopp said.

Both Kopp and Ganeriwala said that the uncertainty about decision making from Washington is already hurting the ability of state and local governments to budget because they don’t know what type of funding they will have.

“We just want certainty,” Ganeriwala said. “We just want decisions to be made and we don’t want this cloud of uncertainty constantly lingering, it’s just not a way to run business.”

The uncertainty is also hurting businesses who have a desire to hunker down and postpone hiring, Kopp said. In March NAST will hold their annual legislative conference in Washington and the group will set up additional meetings with members of Congress.

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