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November 28, 2017

Honorable Mitch McConnell
Majority Leader
United States Senate
317 Russell Senate Office Building
Washington, DC 20510

Honorable Charles E. Schumer
United States Senate
322 Hart Senate Office Building
Washington, DC 20510

Honorable Kirsten E. Gillibrand
United States Senate
478 Russell Senate Office Building
Washington, DC 20510

Re: Maintaining the Tax Exemption for Interest on State and Local Bonds

Dear Senator McConnell, Senator Schumer and Senator Gillibrand:

As you consider sweeping revisions to the U.S. tax code, I urge you to reject changes that
would impair the ability of state and local governments to invest in the infrastructure that
supports the improvement and prosperity of our states, as well as the nation’s economy. In
Federalist Number 45, James Madison explained that the powers reserved to the states would
extend to “all the objects which, in the ordinary course of affairs, concern the lives, liberties, and
properties of the people, and the internal order, improvement, and prosperity of the State.” The
need for critical investments in roads, bridges, water and sewer projects, schools and hospitals is
pervasive and well documented. The primary financing methodology for these investments, and
the good-paying jobs associated with them, is the issuance of tax-exempt state and local bonds.

Current proposals would eliminate or curtail the federal tax exemption for interest on
certain types of state and local bonds. Repealing or restricting the federal tax exemption for these
types of bonds would increase borrowing costs for critical infrastructure needs, because investors
will demand higher interest rates in the absence of such exemptions. These increased borrowing
costs will result in less infrastructure investment or will be borne by taxpayers, ratepayers and
other users of such critical infrastructure.
Senators McConnell, Schumer, Gillibrand
November 28, 2017
Page 2

One critical concern relates to proposals to eliminate the ability of state and local
governments to advance refund tax exempt municipal bonds. Over the last four years, nearly
$10 billion in New York State-supported debt has been advance refunded. These refundings
generated $1.1 billion in total savings to the State over the life of the bonds. New York State is
projected to spend $5.3 billion on debt service costs this year to finance vital infrastructure
projects throughout our State, with that figure expected to rise nearly 40 percent over the next
three years. Rising debt service costs make it more difficult to fund essential programs and
balance the State’s budget without cutting important programs and passing additional costs on to
the people of New York. The loss of the tax exemption for interest on advance refunding bonds
would eliminate opportunities to obtain savings and to limit debt service costs, by removing a
key aspect of debt management flexibility for state and local governments.

In addition, the elimination of the ability to issue private activity bonds (PABs) would
have a significant impact on a range of important projects. This change would immediately
make it more expensive to finance infrastructure projects that directly enhance the health, well-
being and education of New Yorkers and residents of other states, including housing, 501(c)(3)
schools and universities, hospitals and other exempt organizations. Costs would also rise for
many essential transportation, commerce and environmental projects such as airports, port
facilities, and solid waste facilities. In recent years, PAB issuances subject to the federal volume
cap in New York State alone have been about $2 billion annually.

For the sake of New Yorkers and for our overall economy, I urge you to oppose
legislation that would repeal, cap or otherwise restrict the exemption of state and local bond
interest from federal income tax.


Thomas P. DiNapoli
State Comptroller

cc: New York State Congressional Delegation