By Gary Nelson | The Arizona Republic
The mayor of Mesa is among the opposition leaders in a national fight to keep the federal government’s hands off one of the most important tools that cities and school districts use to provide vital public infrastructure.
That tool is the fact that people who buy municipal bonds — in other words, people who lend money to local governments — don’t have to pay federal income taxes on the interest they receive.
It has been a pillar of federal policy ever since the national income tax was established a century ago this year, amounting, in effect, to a federal subsidy for local infrastructure development.
But it could be in trouble as cash-starved federal officials seek every loose dollar they can find. If the exemption is lost or limited, Mesa Mayor Scott Smith says, local governments would be on the hook for billions of dollars in debt-service costs, because they would have to pay higher interest rates to make their debt attractive to investors who would no longer have the tax break.
