Title
A Resolution Of The City Commission Of The City Of Hollywood, Florida Urging Senator Ashley Moody, Senator Rick Scott, And Congresswoman Debbie Wasserman Schultz To Oppose The Elimination To The Tax-Exempt Status Of Municipal Bonds And Preserve and Protect Tax-Exempt Municipal Bonds In Any Upcoming Tax Reform To Be Considered By Congress.
Strategic Plan Focus
Financial Management & Administration
Body
Staff Recommends: Approval of the attached Resolution.
Explanation:
As the 119th US Congress works on tax reform, lawmakers will be considering whether to extend the tax cuts for corporations and individuals originally provided by the 2017 Tax Cuts and Jobs Act. These provisions are set to expire at the end of 2025.
One item under discussion is the elimination of tax exemption on municipal bonds. Tax exempt bonds are a key and crucial financing tool for local governments. The tax-exempt status allows municipalities to fund capital projects at lower interest rates and avoid increasing the tax burden on taxpayers. Tax-exempt financing demonstrates good local stewardship of public dollars, and has been a tool for local governments for over a century.
Nearly $400 billion in municipal bonds were issued in 2023, and $4.2 trillion between 2009 and 2019. If the costs of taxable debt financing averaged just 1% more than tax-exempt financing for those bonds issued in 2023, that would represent another $4 billion in debt on taxpayers. In their recently published white paper titled “Protecting Bonds to Build Infrastructure and Create Jobs”, the Government Finance Officers Association (“GFOA”) and the Public Finance Network (“PFN”) estimate the global savings spread (the difference in costs between tax-exempt and taxable financings) at 210 basis points, which is equivalent to 2.1% in greater interest rate costs for taxable bond issuances.
Tax-exempt municipal bonds provide financing for large scale public projects and infrastructure such as roadways, water and sewer distribution and collection networks and treatment, parks, public safety facilities and equipment, job creation, and long-term economic prosperity. The City of Hollywood has used tax-exempt municipal financing for its capital infrastructure, with $212,067,000 in tax-exempt debt outstanding as of September 30, 2024, not including bank loans and leases.
The GFOA and the PFN estimate that eliminating the tax exemption would increase borrowing costs by $824 billion between 2026 and 2035, either significantly burdening taxpayers or causing critical infrastructure projects to be delayed or abandoned.
A review of the MMD (Municipal Market Data) yield difference for a one- through thirty-year period as of March 12, 2025, shows a minimum difference of 1.17% and a maximum difference of 1.66% between the interest rates on tax-exempt vs taxable AAA rated bonds. The City of Hollywood paid approximately $13.11 million in interest on its tax-exempt municipal bond debt (not including bank loans and leases) in fiscal year 2024. If that debt were all taxable instead of tax-exempt, based upon the average of the minimum and maximum yield spreads between tax-exempt and taxable bonds of 1.42%, it is estimated it would have cost the City an additional $3.01 million in interest costs last fiscal year alone.
Fiscal Impact:
There is no immediate fiscal impact associated with this resolution, as it is a request to members of Congress to oppose the elimination of tax-exempt status of municipal bonds and preserve and protect tax-exempt municipal bonds as a debt financing tool for municipalities. Loss of the ability to issue tax-exempt municipal bonds for capital infrastructure and equipment, however, would have significant negative impact on the ability of the City to finance its capital improvement program in the future.
Recommended for inclusion on the agenda by:
David E. Keller, Special Projects Administrator, City Manager’s Office
Adam Reichbach, Assistant City Manager for Finance and Administration