City not worried about losing muni bond tax exemption
Proposed federal tax budget calls for cuts that could be felt later on
Keith Dirham
MEDINA – Eliminating tax-exempt status of municipal bonds in the proposed federal budget is tempting for Congress and the president, but that threat is nothing new for the city of Medina.
“It would affect us, but not immediately,” Medina Finance Director Keith Dirham said. “This is something they’ve kicked around before. The bonds we’ve already sold, the rates for those are already set.”
Colloquially referred to as “muni bonds,” states, cities, counties and other government entities issue them to outside investors in order to finance various infrastructure projects.
The interest on them is exempt from federal income tax, at least for now.
Currently, the only major bond issues for the city over the past two decades, both dating back to 2002, are construction of the Medina Community Recreation Center and creating the necessary infrastructure for the city’s transition in drawing water from its Lake Medina reservoir to utilizing the services of Avon Lake Municipal Utilities, which pumps from Lake Erie to Medina.
“The rec center and waterline projects, there are some advantages to spreading those payments out over a period of time,” Mayor Dennis Hanwell said of the millions involved. “Of course, we have a pretty reasonable amount set aside in capital funds and, at least in my tenure, we’ve tried to operate in existing available revenues.”
A 2009 renovation of the rec center, totaling about $350,000, was paid for in existing capital funds. Another expansion is planned for just under $650,000, again covered by existing funds.
“Down the road, (elimination of tax-exemption) would definitely increase our bonds,” Dirham said. “Our rate would be the same as the corporate rate ... it would be a challenge for us going forward, but it’s not an emergency.”
As of 2013, the most recent year data was made available, bond credit rating corporation Moody’s had the city of Medina listed at an Aa1 rating, the second highest.
The muni bond market has funded roughly $1.65 trillion in public infrastructure for cities and other governments in the last decade nationwide, according to the National Association of Counties. The borrowed money has paid for schools, roads, water and sewer systems, airports, bridges and more.
In 2016, muni bond and note issuance reached a six-year high at $423.8 billion in new sales, up 12 percent from 2015, according to data from Thomson Reuters.
However, exempting the bonds from federal taxes is projected to cost the U.S. Department of the Treasury about $617 billion in revenue over the next decade, according to an independent tax analysis group called Tax Foundation. This is something President Donald Trump and a Republican-controlled Congress are eying as possible wiggle room in the proposed federal budget.
“It would affect us, but not immediately,” Medina Finance Director Keith Dirham said. “This is something they’ve kicked around before. The bonds we’ve already sold, the rates for those are already set.”
Colloquially referred to as “muni bonds,” states, cities, counties and other government entities issue them to outside investors in order to finance various infrastructure projects.
The interest on them is exempt from federal income tax, at least for now.
Currently, the only major bond issues for the city over the past two decades, both dating back to 2002, are construction of the Medina Community Recreation Center and creating the necessary infrastructure for the city’s transition in drawing water from its Lake Medina reservoir to utilizing the services of Avon Lake Municipal Utilities, which pumps from Lake Erie to Medina.
“The rec center and waterline projects, there are some advantages to spreading those payments out over a period of time,” Mayor Dennis Hanwell said of the millions involved. “Of course, we have a pretty reasonable amount set aside in capital funds and, at least in my tenure, we’ve tried to operate in existing available revenues.”
A 2009 renovation of the rec center, totaling about $350,000, was paid for in existing capital funds. Another expansion is planned for just under $650,000, again covered by existing funds.
“Down the road, (elimination of tax-exemption) would definitely increase our bonds,” Dirham said. “Our rate would be the same as the corporate rate ... it would be a challenge for us going forward, but it’s not an emergency.”
As of 2013, the most recent year data was made available, bond credit rating corporation Moody’s had the city of Medina listed at an Aa1 rating, the second highest.
The muni bond market has funded roughly $1.65 trillion in public infrastructure for cities and other governments in the last decade nationwide, according to the National Association of Counties. The borrowed money has paid for schools, roads, water and sewer systems, airports, bridges and more.
In 2016, muni bond and note issuance reached a six-year high at $423.8 billion in new sales, up 12 percent from 2015, according to data from Thomson Reuters.
However, exempting the bonds from federal taxes is projected to cost the U.S. Department of the Treasury about $617 billion in revenue over the next decade, according to an independent tax analysis group called Tax Foundation. This is something President Donald Trump and a Republican-controlled Congress are eying as possible wiggle room in the proposed federal budget.