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FF-13. Taxation of Municipal Bond <br />Interest <br />Issue: The federal and state laws that grant a <br />tax exemption to bondholders for municipal <br />bond interest lowers borrowing costs for <br />cities and reduces property tax levies. <br />Recent proposed Internal Revenue Service <br />rules would potentially restrict some local <br />government entities such as housing and <br />redevelopment authorities, economic <br />development authorities and port authorities <br />from issuing tax exempt bonds. <br />Response: Congress and the state should <br />maintain the tax exemption for municipal <br />bond interest income. Congress should <br />also clarify the law to supersede proposed <br />IRS rules and thereby continue to allow <br />housing and redevelopment authorities, <br />economic development authorities and <br />port authorities to issue tax exempt debt. <br />FF-14. Pollution Control <br />Exemption <br />Issue: Minnesota grants electric utilities and <br />several other industries a property tax <br />exemption for personal and real property <br />that is primarily used for pollution control. <br />Minnesota adopted the property tax <br />exemption that now extends to electrical <br />generation systems, agricultural operations, <br />and wastewater treatment facilities in 1967, <br />before water and air pollution were heavily <br />regulated by the Environmental Protection <br />Agency and the Minnesota Pollution Control <br />Agency. The language and the purpose of <br />these statutes have evolved through the <br />years. When states first began adopting <br />these tax incentives in the 1960s, they hoped <br />to encourage utilities, industrial plants, and <br />others to install pollution control equipment. <br />Gradually, as regulation increased, states <br />adopted the exemptions to help companies <br />offset the cost of the equipment. <br />This tax benefit erodes local tax bases. In <br />2013, more than $1.8 billion of personal and <br />real property for electrical generation was <br />exempted from the market value of utilities. <br />The incentive value of this benefit is low <br />because utility companies are required to <br />install the equipment anyway. In addition, <br />these companies frequently recover the cost <br />of the equipment through rate riders granted <br />by the Public Utilities Commission. <br />Allowing the pollution control equipment <br />exemption places the cost of this equipment <br />on the citizens of the host community, rather <br />than the purchasers of electricity. <br />Response: The pollution control <br />exemption places an undue burden on <br />host communities without incentivizing <br />the environmentally responsible behavior <br />that it was originally created to <br />encourage. The League of Minnesota <br />Cities supports narrowing or eliminating <br />the pollution control equipment <br />exemption for investor owned electric <br />generation facilities. The League would <br />also support allowing utilities to continue <br />to recover their costs relating to the <br />pollution control equipment by spreading <br />those costs to electricity users. <br />FF-15. Local Elected Officials <br />Authority to Establish Local <br />Budgets <br />Issue: In 2015, the House omnibus tax bill <br />included a reverse referendum provision that <br />would allow a small number of voters (ten <br />percent of those voting in the last general <br />election) to petition for a referendum on a <br />general city property tax levy increase. The <br />outcome of the election could reverse the <br />decision of the local elected officials on the <br />local budget and property tax levy after <br />months of planning and public hearings. <br />League of Minnesota Cities <br />2018 City Policies Page 110 <br />