Public Power Daily Logo

APPA is critical of provisions in federal budget proposal that could affect bonds, TVA


From the March 6, 2014 issue of Public Power Daily

Originally published March 6, 2014

By Jeannine Anderson
Editor

APPA said yesterday it is concerned about a provision in President Obama's proposed budget for fiscal year 2015 that would impose a surtax on municipal bond interest. The association also expressed concern about a possible change to the Tennessee Valley Authority’s business model that is mentioned in the 2015 budget plan.

APPA "appreciates the president’s interest in spurring infrastructure investments," the association said, but "we believe that by repeating a proposal to impose an unprecedented federal surtax on municipal bond interest, his  fiscal year 2015 budget would do more harm than good."

Such a surtax, of up to 15.4 percent for bondholders in the top marginal income tax bracket, "would affect bond prices for all bondholders and not just those hit with the tax," APPA said. "In turn, this would drive up the interest rate demanded by all future investors—substantially increasing state and local borrowing costs," such as the costs of financing power plants, energy conservation programs and measures to improve grid security. Prior analysis of a similar proposal "indicates it would have increased the cost of a AAA-rated municipal bond issuance in 2012 by roughly 80 basis points, (e.g. from 3.2 percent to 4.0 percent)," APPA said.
 
The proposal is part of a plan that would also create a new Federal Infrastructure Bank, provide a refundable tax credit for renewable power generation and restart the Build America Bonds program by creating America Fast Forward Bonds.

Noting that nearly $12 billion in municipal bonds is issued every year to finance new power-related projects, APPA said the likely cost of the proposed tax on municipal bonds "dwarfs any additional savings or incentives proposed elsewhere in [the president's] budget."

Turning to the Tennessee Valley Authority, APPA voiced concern with "the president’s continued interest in reviewing TVA’s business model"  and said it does not believe federal ties with TVA should be severed.  In his FY 2015 budget to Congress this week, President Obama praised TVA for taking steps to improve its "future operating and financial performance," but signaled that he remains interested in working with Congress to cut federal ties to TVA.

"The administration continues to believe that reducing or eliminating the federal government’s role in programs such as TVA, which have achieved their original objectives, can help mitigate risk to taxpayers," the White House’s Office of Management and Budget wrote in an overview of the president’s budget request to Congress.

APPA noted that TVA was established by Congress in 1933 to address a wide range of issues, including the delivery of low-cost electricity and the management of natural resources. President Franklin D. Roosevelt also cited the need for a "yardstick" by which to judge other power providers.

"TVA continues to fulfill these roles today and the response should be to strengthen it for the future, not auction it off," APPA said. "It is also important to note that TVA is self-supporting, does not receive taxpayer dollars, and its debt is not taxpayer funded."

The association's full statement is posted in the Newsroom section of publicpower.org.

Ratings

Be the first to rate this item!

Please Sign in to rate this.

Comments

  Add Your Comment

(1000 of 1000 characters remaining)