Tax & Finance

LPPC members build electricity infrastructure and secure electricity, fuel and supplies through financial tools that keep electricity prices at affordable, stable levels.

PRESERVING TAX-EXEMPT FINANCING

LPPC members, like states, municipalities and other local government entities, use municipal bonds to invest in new infrastructure in the most affordable manner for the communities we serve. The interest earned on municipal bonds is currently exempt from federal income tax. As Congress debates tax reform, it should consider carefully the effect that changing the federal tax treatment of municipal bonds would have on critical infrastructure investments and the price that public power customers pay for electricity, especially small business and low- and fixed-income households.

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Every year, public power utilities average $15 billion in new infrastructure investment. This includes investments in power generation, transmission distribution, reliability, demand control, efficiency and emissions control—which are all needed to deliver safe, affordable and reliable electricity. Over the next five years, LPPC members will issue $14.25 billion in tax-exempt municipal bonds to build and improve critical infrastructure to ensure reliability of the grid.

The U.S. municipal bond market is established and sound. With a robust and comprehensive federal legislative and regulatory system in place, investors and taxpayers are well-protected. LPPC members are significant participants in the municipal bond market; members currently hold $68.47 billion in tax-exempt bonds.

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Calls to tax municipal bonds to pay for federal income tax rate cuts, deficit reduction or new federal spending are on the rise. Limiting or eliminating the income tax exemption for interest from municipal bonds would increase borrowing costs for public power and other state and local governments and, as a result, would reduce investments in vital infrastructure across the country and increase the cost of electricity for public power customers. Ultimately, a disproportionate share of this burden will be shouldered by those who can least afford it.

Maintaining the current exclusion for municipal bond interest is essential for infrastructure investment, economic growth, and job creation. They serve the best interests of communities.

DIRECT PAY BONDS

As part of the American Recovery and Reinvestment Act of 2009, Congress provided state and local governments, including public power, with a new kind of financing tool. Build America Bonds (BABs) address the disruption in the municipal bond market that resulted from the financial crisis.

BABs are taxable bonds on which the federal government reimbursed the issuer for a portion of the interest paid. They have helped state and local governments finance public infrastructure projects at lower borrowing costs. BABs expired at the end of 2010, and interest subsidy payments on existing bonds have been impacted by across-the-board budget cuts that went into effect on March 1, 2013.

Direct payment bonds can be a useful complement to municipal bonds and LPPC supports the reinstatement of the BABs or other direct payment bond programs to support infrastructure investment and job creation. However, LPPC opposes suggestions that tax-exempt bonds be eliminated and replaced with direct payment bonds.

In 2013, the Obama administration proposed an expansion of the direct payment bond market. LPPC looks forward to working with policy makers to ensure that financial tools and regulations are best suited to serve our customers and keep prices low.

DODD-FRANK FINANCIAL REFORM

The US Commodity Futures Trading Commission (CFTC) is working on rules to implement financial reform policies set forth by the Dodd-Frank Act. Swaps and other non-financial commodity transactions play a central role in securing electric energy, fuel for generation and natural gas supplies.

LPPC is working with CFTC and Congress on solutions to ensure that new financial rules will allow non-profit public power companies to continue to engage in non-financial energy trades with other parties so that we can continue to set affordable rates for our customers.