Preserving the Tax-Exempt Status of Municipal Bonds: A look back at GFR in February 1963.

• Position: Rewind

Thisissueof Municipal Finance [renamed Government Finance Review somewhat later] addressed intergovernmental tax immunity, the legal principle acting as a constitutional check on the powers of federal and state governments to levy taxes on each other, ft's a topic GFOA is still working on, although now we tend to refer to it as state and local government taxing authority, and the preemption thereof. [See gfoa.org/pps-tax-exempt-financing for information about GFOA's ongoing defense of the exemption of municipal bond interest from federal and applicable state income taxation.]

This historic exemption from taxation of interest on state and local government bonds reinforces our nation's federal system and provides major advantages to communities across America, including lower costs to fund government infrastructure and services; freedom from the uncertainties of the annual Congressional appropriations process in funding capital needs or any portion of their interest costs; and efficient access to capital markets without delay or interference from the federal government. Although the primary beneficiaries of a particular bond issuance are the citizens of the issuing community, the nation has a vital interest in maintaining adequate and safe public facilities to support a dynamic economy. The national interest is well-served by keeping state and local government borrowing costs low, thereby providing an incentive for public investment in infrastructure.

GFOA has opposed efforts that curtail the use and attractiveness of tax-exempt bonds. Congress has enacted measures, most notably in the late 1960s and in 1986, that placed severe restrictions on the use of tax-exempt bonds, and these laws continue to apply today. Additionally, the IRS has...