All citizens benefit from tax-exempt bonds, not just the citizens of the issuing community for a specific project; the nation as a whole has a vital interest in maintaining adequate public facilities to support a dynamic economy. Keeping state and local government borrowing costs at the lowest cost to taxpayers provides an incentive for public investment in infrastructure and other facilities, according to "Options Used For Public Infrastructure," a primer from GFOA and other members of the Public Finance Network, a coalition of organizations interested in preserving the tax-exempt status of state and local government bonds. From 2012 to 2017,67,025 long-term tax-exempt bonds were issued, totaling $2.1 trillion.
Entities that issue debt typically need the support of their communities when pursing a bond measure, allowing the decisions on public infrastructure and capital improvement needs to be made at the level where the project affects citizens directly (e.g., libraries, schools, roads and road improvements, water systems, mass transit, affordable housing, public and non-profit hospitals, and other government-owned facilities). The entity must also abide by federal laws and regulations at the time of and following the issuance of the bonds, as well as numerous zoning, environmental, licensure, and other regulatory requirements. Bonds are the best way to implement the infrastructure needs of each community effectively, as the decision to issue bonds is determined and approved of by either the citizens themselves, through bond referenda, or by their elected legislative bodies, directly or through appointed boards.
Unlike corporate debt issues, the interest received by holders of tax-exempt bonds is exempt from federal income taxes and may also be exempt from state and local income taxes. Consequently, investors accept a lower interest rate on these investments in return for a reduced tax burden. This lower rate reduces borrowing costs for state and local governments, which is a direct benefit to tax and rate-payers.