GRDA, other large public power utilities discuss tax-exempt bond issue

Power for Progress…
A weekly column from the Grand River Dam Authority
Tax-exempt municipal bonds, long considered a tried-and-true financing vehicle for state and local governments to meet their citizens’ needs, may have an uncertain future if a recent White House proposal becomes law.

That is the message that members of the Large Public Power Council (LPPC) are sharing today.

Building critical infrastructure … In this image, taken during the early 1980s, both the steel frame for the GRDA Coal Fired Complex boiler and the complex’s chimney, are still under construction. GRDA was able to build this powerful asset – which has provided low-cost, reliable power for thousands of Oklahomans and boosted the state’s economy for over three decades –  due in large part to its ability to sell tax exempt bonds. Those bonds were paid off with revenues from electric sales, at no obligation to the state of Oklahoma.

Building critical infrastructure … In this image, taken during the early 1980s, both the steel frame for the GRDA Coal Fired Complex boiler and the complex’s chimney, are still under construction. GRDA was able to build this powerful asset – which has provided low-cost, reliable power for thousands of Oklahomans and boosted the state’s economy for over three decades – due in large part to its ability to sell tax exempt bonds. Those bonds were paid off with revenues from electric sales, at no obligation to the state of Oklahoma.

Grand River Dam Authority Chief Executive Officer/Director of Investments Dan Sullivan, recently authored an opinion piece to address the issue. Sullivan pointed out that proposed changes to the federal income tax system either as part of the next round of budget talks or in the context of a comprehensive tax reform, could affect the interest paid on those municipal bonds. If that were to happen, state and local governments could struggle to finance the critical infrastructure they need, wrote Sullivan.

However, GRDA’s CEO is not alone in bringing the issue to light. Recently, one of his colleagues on the Large Public Power Council (LPPC), Chairman Lonnie Carter, also issued a statement voicing his concern to a plan being proposed by the White House.

“The president’s proposal to cap the tax exemption for interest on municipal bonds is a significant threat to state and local governments and other municipal entities—including publicly owned utilities—and will negatively impact investment in critical infrastructure,” wrote Carter, in a statement released by LPPC. As the CEO of Santee Cooper – South Carolina’s state-owned electric utility similar in structure to GRDA – Carter’s words echoed Sullivan’s from earlier this year.

“Oftentimes, it’s the only tool [local governments] have to access capital to build critical community projects such as roads, tunnels, bridges, schools, hospitals, housing and electricity and water infrastructure,” wrote Carter.

Both Sullivan and Carter agree that altering or limiting the current federal tax exemption for municipal bond interest would hinder these investments, which would result not only in less infrastructure but also higher costs to states and localities already under fiscal stress.

GRDA is nonprofit and does not sell stock, thus needed capital has to be raised by issuing municipal bonds. GRDA then pays off the bonds with revenues from the sale of electricity, so there is no obligation to the State of Oklahoma

These are the same type of bonds that made the construction of the GRDA Coal Fired Complex possible over three decades ago. They are also the same type GRDA bonds that are currently held by investors in 76 of 77 counties in Oklahoma. These bonds represent a long-term investment in GRDA and are ultimately paid for by those electric customers who get their power from GRDA’s assets and infrastructure.

So the message from these LPPC members to national lawmakers is a simple one: Carefully consider the impact that tax changes on municipal bonds would have on investment in infrastructure. After all, such infrastructure – including electric generation and transmission facilities – can help power Oklahoma to a brighter future.

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