WASHINGTON -- Rep. Tom McMillen, as expected, introduced legislation last week designed to boost demand for municipal bonds by subsidizing pension funds and individual retirement accounts for purchasing tax-exempts.
"The basis for this legislation was a desire to find a suitable source of funding for infrastructure development without burdening the U.S. taxpayer with a multi-billion dollar liability," Rep. McMillen, D-Md., said in a statement.
Under Rep. McMillen's plan, pension funds and IRAs would receive 43 cents in subsidies from the federal government for every dollar earned in interest income from investments in tax-exempt bonds, either general obligation or private-activity bonds.
Rep. McMillen first announced his intention last month to offer the legislation.
At the time, he said that pension funds represent $3 trillion of capital available for investment, "and could pump billions of dollars into local economies nationwide."
If the proposal were enacted, the resulting increase in demand would cause interest rates on tax-exempt debt to fall by 10%, Rep. McMillen said in his statement last week.
"This means that an average county can increase its debt by 10% without changing its existing debt servicing payments," allowing it to increase spending on infrastructure, he added.
Municipal lobbyists have said they are skeptical about the outlook for Congressional action on Rep. McMillen's proposal.
Though the congressman contends that his proposal can be implemented without burdening the American taxpayers, the lobbyists have pointed out that Congress would have to appropriate huge amounts of money for the subsidy payments.
During a time when the federal government is trying to cut the budget deficit, Congress is not likely to make those appropriations, the lobbyists said.