Denton city leaders heard from federal lobbyists Monday in a briefing that touched on transportation, public safety, communications, block grants, local authority and the federal “fiscal cliff.”
In addition, they learned tax-exempt municipal bonds could be on the chopping block as a lame-duck Congress faces not only expiring tax cuts but also automatic budget reductions.
Joy Grewatz and Ralph Garboushian, consultants from the city’s lobbying firm, CapitalEdge in Washington, D.C., briefed the City Council and other city leaders during a special called session Monday morning.
Garboushian told city leaders that about $1 trillion will be in play when Congress reconvenes after the election. However, he believed that Congress would neither make a grand bargain to reduce the deficit nor allow the automatic reductions, despite the positive effect the “fiscal cliff” could have on the federal deficit.
“I think they will find a way to punt,” Garboushian said.
Some analysts have called the austerity measures so severe, possibly reducing the deficit by 5 percent or more of the country’s gross domestic product, that the U.S. economy could see a larger contraction than occurred in Greece and other European nations — the “fiscal cliff.”
The recommendation to cut the tax exemption for municipal bonds was in a report by Congress’ Joint Committee on Taxation, “Estimates Of Federal Tax Expenditures For Fiscal Years 2011-2015,” released Jan. 12.
The committee found that tax-free municipal bonds made it too easy for local governments to spend more than they should and were an inefficient way to pay for public works projects. The committee also found that the tax exemption benefited taxpayers in the highest brackets. Instead, the committee recommended eliminating the exemption and that public works projects be paid for with direct grants.
Critics of the committee’s report have questioned whether the tax exemption would drive investors’ money to other markets and make it more expensive for local governments to borrow, a prospect council member Pete Kamp called “a little alarming.”
Garboushian recommended the city monitor the provision and “be ready to act quickly to educate the delegation on what it might mean.”
Congress has been gridlocked on any new major legislation since July, when members cobbled together enough money to pay for two years of transportation projects, Garboushian said. Congress passed 196 public laws this session, as compared to the more usual 300 to 600 laws per session.
In the coming years, more transportation projects may be paid for with low-interest or no-interest federal loans, since transportation expenses have exceeded gas taxes for some time, Garboushian said.
Three federal programs that paid for transportation alternatives — trails, safe routes to schools and other enhancements — have been combined into one program to be administered by the states, although there are sub-allocations to urban areas, he said.
When Congress again attempts to authorize another five years of transportation funding, local governments should prepare, Garboushian said.
“Local governments need to collectively start now, not just to play defense, but to play offensively for things like alternative transportation,” Garboushian said.
Local governments should also monitor the development of FirstNet, the nation’s first national public safety broadband network. That may include cajoling state officials into participating, rather than opting out, he said.
Garboushian detailed other legislative threats that ebb and flow, and could return, such as a Federal Communications Commission challenge to local zoning authority over broadband, a travel industry challenge to collect hotel occupancy tax and an online retailers’ challenge to collect sales tax.
Council member Chris Watts wondered whether wind credits would continue, since the city’s power supply was about 40 percent wind energy.
Garboushian wouldn’t predict what could happen. But wind energy companies may be strong enough to survive without them, since waiting for them to expire “is a terrible way of doing business,” he said.
Council member Dalton Gregory echoed the sentiment for the city itself.
“We have to constantly protect ourselves from losing revenue streams, and unfunded mandates,” Gregory said. “It’s an odd way to do business — to stay afloat.”
PEGGY HEINKEL-WOLFE can be reached at 940-566-6881. Her e-mail address is firstname.lastname@example.org .