Repealing Tax Exemption: Impact on Small and Medium Sized Communities

Justin Formas, John Balzano

This report demonstrates the potentially detrimental effects on taxpayers and residents if municipalities are forced to issue taxable debt as a result of proposed changes to the federal income taxexemption of municipal bonds. This is a core issue for local governments, particularly in the face of current and future budget constraints. The impacts are no more evident than when viewed from the perspective of small and medium-sized issuers, who comprise the majority of financings that come to market each year. The two examples presented in this report quantify the increased financing costs that will result if the tax-exempt financing option is repealed or if a limit is applied on the value of tax-exemption. These case studies should serve as a warning for thousands of communities across the country.

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