In addition to representing municipal interests on state legislation, CML is active at the federal level, and has outlined a set of legislative priorities.
CML also is a founding member of the National League of Cities. To view the National League of Cities legislative agenda, click here.
H.R. 1: The Tax Cuts and Jobs Act
On November 16, 2017, the U.S. House of Representatives passed H.R. 1, also known as the “Tax Cuts & Jobs Act,” on a 227-205 vote. CML is concerned by and stands opposed to several provisions of the bill, including the changes made to the state and local tax (SALT) deduction, the elimination of tax exempt-status for private activity bonds, and the termination of key tax credits that directly benefit cities and towns.
To read CML Executive Director Sam Mamet’s response to the proposed changes, please click here.
State and Local Tax (SALT) Deduction
The Tax Cuts and Jobs Act completely eliminates the deductions for state and local income and sales taxes and caps the property tax deduction at $10,000. In addition to hurting municipalities, these changes will negatively impact Title 32 special districts, counties, and school districts.
For an explainer on SALT, and on the consequences of eliminating it, please watch this short video produced by Rockefeller Institute of Government.
Following Representative Tom MacArthur's (R-N.J.) November 18 remarks that the $10,000 cap will still allow nearly every taxpayer in his district to fully take advantage of the property tax deduction, The Washington Post analyzed the likely effects of the reform on taxpayers within different brackets, ultimately awarding Rep. MacArthur Two Pinocchios for his claim.
Also up for elimination are the Historic Preservation Tax Credit, which encourages the redevelopment of historic and abandoned buildings, and the New Markets Tax Credits, which are used to increase the flow of capital to businesses and low income communities by providing a modest tax incentive to private investors.
The elimination of these key tax credits will directly and negatively impact Colorado cities and towns. CML will be calling the Colorado Congressional delegation in the next few days, and we encourage our members to contact representatives' district offices (see the bottom of this page for links to representative websites) and alert them to your concerns.
In a letter to the editor of the Denver Post, CML Executive Director Sam Mamet stated,
While efforts to reform the federal tax code are admirable, Colorado city and town leaders are very concerned about losing the state and local tax deduction, otherwise known as SALT. Here’s why.
First, there is an important principle of federalism at stake. In our system of government, Washington has always respected the tax policy prerogatives of the states and of local governments. Elimination of SALT tosses that aside.
Second, in Colorado, cities and towns rely most heavily on locally raised sales tax revenues and far less on state-shared revenues. That has been so for decades as an extension of local control by local taxpayers. The elimination of SALT will make reliance upon the local sales tax more difficult, and this is most troubling.
Finally, as a practical matter, in Colorado, more than 30 percent of federal tax filers use this deduction at an average of slightly over $9,000. This is not inconsequential for local taxpayers.
We respectfully ask Congress and President Donald Trump to retain this important deduction.
Sam Mamet, Executive Director, Colorado Municipal League
On November 9, 2017, the Senate Finance Committee released a proposal that differs from the House bill in how local governments would be affected, but still includes several provisions which would negatively impact municipalities. The Senate proposal does not mention the New Markets Tax Credits program, but it does reduce the Historic Preservation Tax Credit, while eliminating the federal SALT deduction in its entirety.
Protect Municipal Bonds
The federal income tax exemption on municipal bonds benefits all Americans by incentivizing private individuals, mutual funds, and financial institutions to purchase the bonds, even with a lower interest rate. The lower interest rate in turn saves local governments an average of 25 to 30 percent on interest costs, allowing more funds to be directed toward critically important public infrastructure projects. CML commends Representatives Mike Coffman and Scott Tipton for being two of the 156 co-signers in a letter to the ranking members of the Ways & Means Committee supporting continued protection of municipal bonds.
The Tax Cuts & Jobs Act does not alter the current tax exemption for municipal bonds, however, other types of bond financing are seriously threatened. The tax exemption for newly issued private activity bonds (PABs) is eliminated. This includes financing for important qualified projects and programs, such as affordable housing, economic development, hospitals, educational and cultural facilities, and much more. For more on the benefits of PABs, review this flyer or this factsheet, both by Colorado Housing and Finance Authority. CML co-signed a letter with Colorado Housing and Finance Authority and the Colorado Chapter of the National Association of Housing and Redevelopment Officials, urging the Colorado Congressional delegation to preserve PABs. CML applauds Representative Jared Polis for co-sponsoring an amendment to the House bill that would have preserved tax-exempt PABs, and is disappointed by its defeat by the House Rules Committee.
The Senate proposal preserves the exemption for PABs, though it eliminates the exemption for future advance refunding bonds, which are used by state and local governments to refinance debt and therefore save on borrowing costs.
CML stands beside several other respected organizations, in both the private and public sectors, in opposing these changes to the tax code. For further reading and analysis about how the Tax Cuts & Jobs Act would hurt municipalities, visit the following websites:
Center on Budget and Policy Priorities: House Tax Bill’s Changes to State and Local Tax Deductions Would Hurt States
Governing.com: GOP Tax Plan Puts Billions in Muni Market Savings at Risk
Butler Snow LLP: HR 1 Impacts Tax Exempt Bonds and Certain Tax Credits; Senate Version of Tax Cuts and Jobs Act Eliminates Advance Refundings
Colorado Housing and Financing Authority: HFA Call to Action to Restore Housing Bonds in House Tax Reform Bill
Americans Against Double Taxation: Middle-Class Suburban Homeowners Will Get Tax Hike Under Brady Bill
League of California Cities: Coalition of Local Governments, Economic Development Leaders, Schools and Realtors Urge California Congressional Delegation to Reject Tax Reforms that Harm Taxpayers, Homeowners and the Economy
Routefifty.com: Changes to Bond Rules in GOP Tax Bill Could Shake Up Infrastructure Financing
Wells Fargo Securities: Tax Changes and the Municipal Market: To What End? (document download)
Letter from Town of Gypsum Mayor Steve Carver to Colorado Congressional delegation (document download)
Letter from City of Denver Mayor Michael Hancock to Colorado Congressional delegation (document download)
Matthew Chase, Executive Director of the National Association of Counties: Smartest Places Emphasize Strategic Public Investments, Tax Reform Proposals Accelerate U.S. Race to the Bottom
The Hill: Lawmakers Fight to Save Infrastructure Financing Tool in GOP Tax Bill
Routefifty.com: Senate Tax Plan Would Completely Scrap State and Local Deduction
Close the Online Sales Tax Loophole
For a clear understanding of the reasons it is necessary to close the online sales tax loophole, please read this guest post by Lisa Soronen, State and Local Legal Center executive director, on the Municipalities Matter blog.
National League of Cities also provides a brief explainer on the harm this loophole causes to municipalities, including our members. Over the past several years, members of Congress have introduced versions of a Marketplace Fairness Act, and CML will continue to support this legislation.
Colorado's Congressional delegation