Last week Congress approved a massive Republican-backed budget reconciliation bill that carried a number of President Trump’s priorities. However, the final version of the bill approved by the House and Senate would make no changes to the current tax-exempt status of municipal bond interest, securing a major victory for AMWA and other advocates of affordable infrastructure financing.
Like earlier versions of the legislation, known as the “One Big Beautiful Bill Act,” (H.R. 1), would leave intact the federal tax exemption on interest earned on municipal bonds. Tax-exempt municipal bonds have long been relied on by communities attempting to finance infrastructure investments in an affordable manner, but as lawmakers looked for revenue offsets to pay for the extension of other tax provisions, there had been significant concern that tax-exempt municipal bond interest could be rolled back or eliminated.
As this debate unfolded, AMWA worked with partner organizations to educate lawmakers on the value of tax-exempt municipal bond interest, warning that phasing out the interest exemption could increase local debt service costs by 25 percent. AMWA also encouraged its members to write to their elected officials in support of preserving tax-free municipal bond interest, and in the end neither the House or Senate reconciliation bills proposed making any changes to their current tax status.
The final reconciliation legislation did include several provisions of note for water systems. While the final bill would expedite the expiration of federal tax credits supporting investments in wind and solar power generation, existing tax incentives for other clean energy projects (involving resources like biogas and micro-hydropower) would remain in place through 2032.
The bill also includes an extra $1 billion for the Bureau of Reclamation to support projects to increase the capacity of existing water storage facilities, and an extension of the USDA Grassroots Source Water Protection Program, which prevents the pollution of drinking water sources in rural areas.