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Letter to the Editor - In Support of Tax-Exempt Financing

The City of Algoma has many things to look forward to as we ring in the New Year. Among them is the 109th anniversary of our municipally owned, non-for-profit-electric and water utility, Algoma Utility, which provides reliable, affordable power and excellent hometown electric and water service to our community. But, while we celebrate our community’s strong public power and water tradition, we also look into the future with some trepidation. Tax-exempt municipal bonds, the important financial tools that have made our successful service history possible, are under significant threat in Washington, D.C.

Municipal bonds are the means by which state and local governments finance the critical infrastructure of our nation, including roads, bridges, hospital, schools, and utility systems. For example, Algoma Utility relies on this tool to fund critical utility infrastructure projects, helping to ensure that our utility can provide reliable, affordable power; a fast and customer-focused response to storms and outrages; and the local jobs and cost-effective, energy-saving programs that help support Algoma’s local economy.

But, some in Washington call tax exemption a subsidy from the federal government, even though municipal bonds interest is—and always has been—exempt from federal tax, just as federal bonds are exempt from state and local taxes. A number of proposals have been made to repeal, or limit, this tax exemption to help balance the federal budget, if that happens, our municipalities will have to pay higher interest rates to compensate investors for the taxes they would have to pay. This would have immediate and negative impacts on not-for-profit Algoma Utility and our community, because tax-exempt financing is the only tool we have to fund capital improvements; we cannot look to shareholders to raise capital, and we are not eligible for tax incentives available to private entities. When face with higher borrowing costs, The City of Algoma and the Algoma Utility have two options: 1) to raise taxes and electric rates on our citizens and customers, or 2) to defer or forgo improvements, which could imperil critical systems and services. Neither is acceptable.

The economic turbulence of the last few years has been especially hard on local governments. Taxing municipal bonds to bail out Washington will make the recovery all the more difficult. Simply put, retaining the federal tax exemption or interest on municipal debt is critical to the fiscal health of the City of Algoma and the Algoma Utility and to our ability to reliable and cost-effectively serve our community. 

Tom Reynolds
City Administrator/Clerk-Treasurer for the City of Algoma

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