City of Madison, Wisconsin | Legislative Information Center
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File #: 28418    Version: 1 Name: Municipal Bonds Financing Critical Infrastructure
Type: Resolution Status: Passed
File created: 11/19/2012 In control: COMMON COUNCIL
On agenda: 11/27/2012 Final action: 11/27/2012
Enactment date: 11/28/2012 Enactment #: RES-12-00871
Title: Municipal Bonds Financing Critical Infrastructure
Sponsors: Mark Clear, Paul R. Soglin, Scott J. Resnick, Sue Ellingson, Matthew J. Phair
Date Ver.Action ByActionResultAction DetailsMeeting DetailsWatch
11/27/20121 COMMON COUNCIL Adopt Under Suspension of Rules 2.04, 2.05, 2.24, and 2.25Pass Action details Meeting details Not available
11/19/20121 Mayor's Office RECOMMEND TO COUNCIL TO ADOPT UNDER SUSPENSION OF RULES 2.04, 2.05, 2.24, & 2.25 - MISC. ITEMS  Action details Meeting details Not available
Fiscal Note
No appropriation is required.

The federal tax-exemption for interest on debt issued by municipalities results reduces borrowing costs for municipalities by lowering the tax impact for investors that purchase debt issued by municipalities. Calculating this impact is difficult since it affected by the debt rating of the municipality, economic conditions and market factors. For example, the city's most recent debt issuance in September resulted in true interest costs of 1.53% for tax-exempt debt and 1.64% for taxable debt. As such, the interest rate cost differential of taxable debt would be minimal.

However, market conditions are expected to change with a strengthening economy. Assuming a 0.5% interest rate difference between taxable and tax-exempt debt going forward and applying that to planned issuance of general obligation debt included in the 2013 capital improvement program, repeal of the tax-exemption for municipal debt would result in approximately $7 million in additional interest costs paid by the general fund and $10 million all funds through 2019. Interest costs would also increase for revenue bonds issued to finance Water, Sewer and Parking Utility capital costs. Tax-exempt debt issued by the Community Development Authority could also be affected by changes to the federal tax-exemption.

Municipal Bonds Financing Critical Infrastructure
WHEREAS, municipal bonds are the means by which state and local governments finance the critical infrastructure of our nation, including roads, bridges, hospitals, schools and utility systems; and

WHEREAS, under current law the owners of municipal bonds are not required to pay federal income tax on the interest income they receive from the bonds; and

WHEREAS, this tax exemption is part of a more that century long system of reciprocal immunity under which owners of federal bonds are, in turn, not required to pay state and local income tax on the interest they receive from federal bonds;...

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