Local government is truly where the rubber meets the road. As Baltimore County executive, I proudly oversaw capital projects ranging from the restoration of the Randallstown Library after a fire to the expansion of Cromwell Valley Park. We rebuilt Essex Elementary School and constructed a new interchange at I-795 and Dolfield Road in Owings Mills.
We were able to pay for these and dozens of other projects — which improved the everyday lives of thousands of people — with the help of tax-exempt municipal bonds. These are bonds floated by local or state governments in which a portion of the interest earned by the bond purchasers is exempt from taxes.
In his budget proposal for fiscal 2014, released this week, President Barack Obama suggests limiting the value of tax benefits for top-earning investors in municipal bonds to 28 percent, down from the current 35 percent. Even worse, some federal legislators would eliminate the tax exemption on municipal bond interest altogether.
Why is this important for our state? For more than 100 years, these bonds have been the single most important tool in the country for financing new roads, schools, hospitals and more. Here in Maryland, tax-exempt municipal bonds recently funded part of the Port of Baltimore expansion at Seagirt, generating 5,700 jobs and opening the port to bigger ships for decades to come. They are also funding the express toll lanes on I-95, a project that created 300 direct jobs and will significantly reduce congestion north of Baltimore when it opens next year.
Nationally, studies suggest that three-fourths of infrastructure projects are financed by these bonds, supporting hundreds of thousands of good-paying jobs.
As a former county councilman, county executive and president of the Maryland Association of Counties, I understand that tax-exempt bonds are the most efficient way to fund such infrastructure projects. Unfortunately, not enough members of Congress have local government experience.
The president and some in Congress see capping this tax exemption as a way to help lower the deficit. The Senate, like the president, is considering a 28 percent cap. A proposal in the deficit reduction plan widely known as Simpson-Bowles suggests a complete elimination of tax-exempt financing. While I support the overall goal of Simpson-Bowles, I strongly oppose this particular recommendation.
I'm far from alone in this concern: According to Reuters, a coalition of city and county leaders estimated they would have had to pay $18.8 billion more in interest over the last decade under President Obama's cap — and $53.8 billion if the exemption were removed.
Local governments save an average of 25 percent to 30 percent on interest costs with tax exempt municipal bonds as compared to taxable bonds. If the federal income tax exemption is eliminated or limited, states and localities will pay more to finance projects, leading to less infrastructure investment and fewer jobs. Worse, they will undoubtedly shift costs to their main revenue source: property taxes. It will be a direct sucker punch to the already-suffering real estate market and, more importantly, your wallet.
Though preliminary research suggests I am facing an uphill climb, it is nevertheless my intention to move quickly and aggressively on this issue in Congress. I am already communicating with my colleagues on both sides of the aisle and strategizing how to best protect this crucial tax exemption.
Deficit reduction is an important goal, but we can find a balanced and creative way to reduce government spending and reform our broken tax structure without compromising our communities' ability to improve themselves.
Rep. Dutch Ruppersberger, a Democrat, has represented Maryland's 2nd Congressional District since 2003. He can be reached at http://www.dutch.house.gov. Text NEWS to 70701 to get Baltimore Sun local news text alerts