Spring 2018 issue of Horizons

INDUSTRY UPDATE PUBLIC SECTOR

Municipalities Feel the Pinch When Complying with the New Tax Law by Max Haberkorn, CPA

O n December 22, 2017, the most sweeping change to the U.S. tax code in decades became law. While companies and individual taxpayers reel from the changes, there are several provisions within the Act that will have a substantial impact on state and local governmental entities and their ability to finance operations, both from debt instruments and potential and current revenue sources. Advance Refunding Bonds The most direct impact of the Act upon public sector entities is the loss of tax-exempt status of advance refunding bonds.

Advance refunding, which allows a local government to refund an outstanding bond with “call protection” of greater than 90 days from the refunding date, allows a local government to obtain better interest rates available in the market. Obtaining better interest rates can lead to substantial interest expense savings over the projected lifetimes of long-term general obligation bonds and certificates of participation. Current bond refundings are still allowed by the Act but, due to their requirement that existing bonds must be eligible for redemption within 90 days of the refunding

44 Municipalities Feel the Pinch When Complying with the New Tax Law