Earlier this year, CivSource reported on a move by the Obama administration to cap the tax exemption for municipal bonds. At that time, municipalities pushed back hard against the proposal citing danger to projects in the pipeline and more cuts to already tight city revenues. Now, Congress is moving against cities again with a proposal that would significantly cut community development block grants and municipal bonds.
The National League of Cities has sent a letter and a delegation of Mayors to Washington to speak with the House Appropriations Committee which is set to vote on the measures today. In the letter, NLC Executive Director Clarence Anthony wrote: “Although we recognize that reductions in federal spending are unavoidable in the current budget environment, the House FY14 T-HUD bill goes too far. Since 2010, Congress has cut CDBG funding by over $1 billion, significantly undermining projects and shuttering services that cities need to create jobs for our residents and that drive economic growth throughout our communities.”
The current proposal could cut the CDBG program by as much as 50%. Over two-thirds (254) of the 383 metro areas in the U.S. have not recovered the jobs lost following the 2008 economic downturn, according to data released at the recent Annual Meeting of the U.S. Conference of Mayors. An additional jobs impact report released in partnership with the National League of Cities, found that if Congress capped the tax exemption to 28% for municipal bonds that finance local infrastructure projects,311,736 jobs, $16.4 billion of labor income and $24.7 billion in GDP would have been lost in 2012.If Congress eliminated the tax exemption all together, then the loss would have been 891,962 jobs,$46.9 billion of labor income and $70.7 billion in GDP.
The White House has expressed support for a 28% cap on exemptions that include municipal bonds, despite loud opposition from cities and counties. The Simpson Bowles plan calls for its elimination.
The report shows that over the last decade (2003-2012), localities financed $1.65 trillion of these infrastructure projects through tax exempt, municipal bonds. That money has only served to stave off further crumbling of our national infrastructure which is decades old and decaying.
Sacramento Mayor and USCM Vice President Kevin Johnson also expressed concern about the impact upon education. “What concerns me most is the hit education will take if the exemption is reduced or eliminated. Mayors are most dependent on bonds for the building and repair of our schools, where our children spend the most time during their young lives,” said Johnson.
“From 2003 to 2012, $514 billion of primary and secondary schools were built with financing from tax exempt bonds. It’s hard enough now to modernize and upkeep our schools. Don’t make it harder by taking this financing tool away from us.”
The CDBG program has already seen at least a billion dollars per year cut from its budget since 2010, cutting the remainder in half eclipses that required by sequestration. Cuts to CDBG put non-profits on the chopping block as well as they are often grant awardees and increasingly have stepped into fill gaps from previous CDBG cuts.