Tax-Exempt Municipal Bonds

Preserving a Critical Water Infrastructure Financing Tool

Tax-exempt municipal bonds have been a key tool for financing municipal investments, including water and wastewater infrastructure, since 1913. NACWA works with a broad coalition of municipal finance organizations to preserve the existing tax-exemption and to restore the option of advance refunding. 

In 2017, NACWA collaborated with the Association of Metropolitan Water Agencies (AMWA) to estimate the value of tax-exempt municipal bonds to water and wastewater infrastructure nationwide and in each state – updating a 2013 joint NACWA - AMWA report on the same topic. The new analysis1 revealed:

  • Communities nationwide issued nearly $38 billion worth of municipal bonds in 2016 to fund investments in drinking water and wastewater infrastructure.
  • Under current laws that exempt municipal bond interest from federal income tax, these issuances were estimated to lead to $63.6 billion worth of debt service costs over 30 years. 
  • If municipal bond interest were fully taxed, these debt service payments would increase to $79.8 billion – an increase of $16 billion, or 25% – significantly increasing costs to ratepayers and constraining further utility investments.

* NOTE: State-specific fact sheets are available for download (bottom), along with a nationwide fact sheet. 

2017 Tax Cuts and Jobs Act and Advance Refunding 

Despite their massive role, tax exempt municipal bonds were on the Congressional chopping block during development of the 2017 Tax Cuts and Jobs Act. The final version of this massive federal tax reform package, signed into law in December 2017, fortunately preserved the 100-year-strong tax-exemption for municipal bonds but unfortunately eliminated the option of advance refunding. A key reason was that eliminating advance refunding “saved” federal dollars based on how legislation is scored, helping pay for other “costs” in the broad package – at the expense of eliminating an important flexibility for communities.

Prior to the 2017 Tax Cuts and Jobs Act, one advanced refunding of tax-exempt municipal bonds was permitted. Historical data obtained by NACWA and collaborating organizations found that between 2012 and 2016, there were 941 instances of advance refunding of tax-exempt municipal bonds for water and wastewater infrastructure investments, saving a total of at least $1.36 billion for local communities and ratepayers. The 2017 repeal eliminated opportunities for communities to reduce costs based on changing conditions.

What's New

  • In the 118th Congress (2023-2024), NACWA continues its collaboration across the municipal financial sector. NACWA participated in a briefing on Capitol Hill during Water Week in support of tax-exempt municipal bond financing, restoring advance refunding, and increasing flexibilities for small bond issuers. WSSC Water’s Kishia Powell, NACWA’s Past President, spoke on behalf of NACWA regarding how tax-exempt bond financing drives capital projects forward more affordably at WSSC Water and clean water utilities around the country.

  • Bipartisan legislation has been introduced in the 118th Congress (2023-2024) to reinstate advance refunding of tax-exempt municipal bonds. NACWA strongly supports the Investing in Our Communities Act, led by Reps. David Kustoff (R-TN) and Dutch Ruppersberger (D-MD). 

  • On December 15, 2022, NACWA joined fellow public sector organizations in sending a letter to leaders of the House and Senate calling for Congress to waive Pay As You Go Act (PAYGO) requirements on Build America Bonds (BABs).  The Letter provided a detailed accounting of why BABs were created and the benefits they have afforded communities in investing in infrastructure at the local level.  As a result of the letter, Congress waived the provision for 2022, 2023, and 2024 when finalizing Omnibus appropriations for Fiscal Year 2023 prior to the close of the 117th Congress

  • We encourage utilities to share with your Members of Congress specific examples of how municipal bond financing works to advance clean water in your community.


  • NACWA signs "Don't Mess with Our Bonds" letter to Congress in support of preserving tax-exempt municipal bonds. (March 29, 2017) 

1     The analysis was conducted by SJ Advisors, LLC.  For simplicity, these estimates were calculated based on the current interest rate environment, and by assuming all bonds were issued for uniform $50 million projects with "AA" credit ratings and 30-year loan maturities. The figures do not include any water infrastructure projects that may have been funded through general obligation bonds.


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