Increased Costs of Municipal Financing

As you know, both corporate and individual tax rates were reduced in last year’s Tax Cuts and Jobs Act.  Lower tax rates make tax-exempt vehicles like municipal bonds less attractive to both corporate and individual investors; with lower tax rates, they have less incentive to look for tax-exempt investments.  Reduced demand for municipal bonds and other tax-exempt investment vehicles like private activity bonds (PABs) means that cities will have to increase the interest rates on new bond issues in order to attract investors.

On top of that, the new cap on the state and local tax deduction will make it harder for municipalities to raise taxes to pay for new infrastructure projects or smart city improvements.  Every state and/or local tax increase will be more expensive as taxpayers are limited on how much they can deduct from their federal taxes: every dollar over $10,000 will be taxed twice.

Not only will this increase costs for municipal governments, it will make it more difficult and more costly to finance the $1 trillion in private investment that the Trump Administration is advocating for in its infrastructure proposal. 

TFG will continue to monitor that debate and advocate for ways to reduce those financing costs.  Please reach out to our team for more information.