County urges feds to keep hands off tax-exempt bond status

Lycoming County commissioners are pushing to keep tax-exempt bonds as they are – tax exempt – and out of the hands of federal regulators who may seek to take away their tax-free status.

Commissioners are expected to adopt a resolution Thursday that defines the county’s stance on any changes at the federal level of tax-exempt bonds.

The county and countless other municipal entities in the U.S. have used tax-exempt bonds to pay for infrastructure projects. The bonds usually give investors a safe return while eliminating the need to pay federal taxes on the investment.

Beth A. Johnston, county director of fiscal services, said Lycoming County has issued more than $30 million in such bonds during the past 10 years for ongoing projects at the landfill and recycling center.

In addition, about $40 million in tax-exempt bonds have been issued by the county for Lycoming County Water and Sewer Authority construction and improvement projects, Johnston said.

“As Congress and the White House develop new budget deficit reduction and tax reform proposals, the tax exemption on municipal bond interest has become a target,” she told commissioners Tuesday at their work session. “Several proposals have been offered that would either completely remove the tax-free exemption or impose a 28-percent cap on the amount investors may exempt from their taxes.”

If that should happen, according to Commissioner Jeff C. Wheeland, taxpayers would feel the pinch of paying more for county projects.

“It has a direct impact on the taxpayers. Ultimately, the taxpayer is going to be footing the bill once again” if the federal government imposes new regulations on tax-exempt bonds, he said.

Johnston said the resolution is a “proactive” measure to show federal legislators where the county stands on the issue.

But Scott Hodge, president of the non-partisan, Washington, D.C.-based Tax Foundation, said in a recent Forbes magazine column that municipal tax-exempt bonds have enabled local governments to greatly increase spending and debt.

Hodge said that as state and local debt has increased by 152 percent, most of those governments are just making interest payments.

“According to U.S. Census data, state and local governments now spend almost $120 billion just in paying interest on their debts,” he wrote. “That’s more than they spend on police, more than twice what they spend on fire protection or parks and recreation, and more than basic services like water, sewer and waste management put together.”