Senators Urge Obama Not to Touch Muni Bonds

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Fourteen Democrats in the Senate are strongly urging President Obama not to cap or eliminate tax exemption for municipal bonds, warding it would have a negative impact on both federal and local budgets and ultimately be “inappropriate and shortsighted.”

“While we recognize the challenges our nation faces as we work to bring order to our fiscal house, we believe strongly that balancing the federal deficit by shifting the burden to local governments would have, ironically, a substantial negative impact on our federal budget outlook through decreased federal tax receipts as a result of diminished economic activity,” the Senators wrote in a one-page letter sent to Obama earlier this week. “We respectfully encourage you to consider other options as you work with Congress to find the savings that we all acknowledge we must find.”

The Senators said that changing tax exemption for municipal bonds would put at risk important services provided by local governments, including utilities for water and sewer as well as public safety such as police and fire protection.

They also said they are “very concerned” about the impact on infrastructure projects such as for roads, airports, housing and hospital construction or maintenance.

The letter comes as Obama’s fiscal 2014 budget, expected to be released on April 10, is likely to include a 28% cap on the value of tax exemption for higher income earners. Muni experts have warned that such a cap would dramatically increase borrowing costs for state and local governments.

Last month more than 50 state and local groups sent a letter to Senate leaders urging them to maintain the status of tax-exempt bonds.

The fourteen Senators include: Mark Begich of Alaska, Maria Cantwell of Washington, Kristen Gillibrand of New York, Bernard Sanders of Vermont, William Cowan of Massachusetts, Tom Udall of New Mexico, Tom Harkin of Iowa, Elizabeth Warren of Massachusetts, Tim Johnson of South Dakota, Barbara Boxer of California, Heidi Heitkamp of North Dakota, Mary Landrieu of Louisiana, Tammy Baldwin of Wisconsin of Wisconsin, and Al Franken of Minnesota.

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