Fitch: Proposed Tax Plans Could Increase Costs for Muni Issuers

NEW YORK--()--Recently proposed changes to the tax code regarding municipal debt could increase the cost of capital for municipal issuers and limit their financial flexibility, Fitch Ratings says.

Last week President Obama called for a 28% cap on the tax exemption for municipal bond interest for high earners. A tax reform plan released by Rep. Dave Camp (R-Mich.) in the previous week would remove the federal tax subsidy for newly issued private activity and advanced refunding bonds, eliminate the bank qualification for small issuers, and stop the issuance of tax credit bonds. The plan would also make changes to the personal income tax code, including a 25% cap on tax-exempt interest and other revisions.

The proposals could delay some projects, inhibiting economic growth as transportation and other public infrastructure costs mount. According to the Department of Transportation, maintaining roads and transit systems at their current conditions will cost up to $105 billion, while improvements will bring total costs to $146-$171 billion annually through 2030.

Obama's proposal would also put the America Fast Forward (AFF) bonds program into action. AFF bonds would be generally similar to Build America Bonds (BABs) and, as was the case with BABs, may be more popular with larger municipal issuers.

The prospects for either of proposal are uncertain. Fitch will monitor the proceedings and other budgetary negotiations closely.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Dan Champeau, +1 212-908-9188
Managing Director, Global Group Head
Public Finance and Global Infrastructure
33 Whitehall Street
New York, NY
or
Rob Rowan, +1 212 908-9159
Senior Director
Fitch Wire
1 State Street Plaza
New York, NY
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Dan Champeau, +1 212-908-9188
Managing Director, Global Group Head
Public Finance and Global Infrastructure
33 Whitehall Street
New York, NY
or
Rob Rowan, +1 212 908-9159
Senior Director
Fitch Wire
1 State Street Plaza
New York, NY
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com