A cap on the value of tax-exempt municipal bond interest will likely be part of any tax reform discussions, a Treasury Department official said Monday.

“I know some of you have expressed concern with the president’s recent proposal to cap the income tax exclusion on a host of deductions, including mortgage and municipal bond interest,” Michael Stegman, counselor to the Treasury Secretary for Housing Finance Policy, told those attending the 2013 Legislative Conference of the National Council of State Housing Agencies. “Even though this limitation was not imposed in the recent legislation that postponed the fiscal cliff, a cap on the income tax exclusion will likely be part of any discussion of broader tax reforms.”

However, Stegman said the administration agrees with most housing policy observers that the low income housing tax credit “has become an indispensable production resource” and that its “impressive record should stand it in good stead” in tax reform debates.

“As the administration continues to evaluate the best course of action on fiscal reform, we remain committed to communicating with market participants and stakeholders as we pursue a balanced approach that considers all alternatives,” he added.

Stegman made his remarks after members of several state and local government groups came to Washington, D.C. last week to lobby lawmakers against any cap and to convince them that tax-exempt bonds are critical for state and local governmental financing of infrastructure projects.

President Obama proposed a 28% cap on the value of tax expenditures, including muni bond interest and the mortgage interest deduction, in his jobs bill in 2011 and in last year’s budget request. It was reportedly under consideration by both Democrats and Republicans in the fiscal cliff agreement negotiations.

Stegman also told those attending the conference that HFAs “have played a tremendous role” and, by issuing tax-exempt mortgage revenue bonds over the years, have “helped finance the production of more than 2.6 million single-family homes and nearly one million apartments affordable to lower income families.”

“Every year your agencies provide about 27,000 borrowers with critical down payment and closing cost assistance towards purchasing their first homes,” he said.

He noted that Moody’s Investors Service late last year said that despite a rise of delinquencies in some quarters, the overall financial position of HFAs remains healthy and strong.

Stegman also touted the Treasury’s New Issue Bond Program, under which the department committed to purchase $15.3 billion of tax-exempt housing bonds issued by HFAs. The Treasury extended the program through 2012. He also lauded the Temporary Credit and Liquidity Program, under which governmental sponsored enterprises Fannie Mae and Freddie Mac provided three-year temporary credit and liquidity to HFAs to replace their existing liquidity facilities for eligible outstanding variable-rate demand obligations. That program has been extended through 2015.

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