Analysis: Federal Tax Law Creates Burdens for Local Government

As the dust settles after the signing of the Federal Tax Cuts and Jobs Act of 2017, its impact to local governments has become clear: there are barriers to maintaining revenue levels, along with higher costs. This new operating environment will affect service levels in cities, towns, and counties across the U.S.

Below is a quick rundown of key changes and their impact.

 

Reduced

  • SALT deduction. The $10,000 cap on the state and local tax (SALT) deduction could mean lower home values and property tax assessments, which accounts for about half of a city’s revenue
  • Mortgage interest deduction. New homeowners can deduct no more than $750,000, further eliminating the incentive for home ownership and tax payments

Eliminated

  • Advanced Refunding Bonds. No longer a tool for refinancing outstanding debt at lower interest rates, the lack of these bonds will increase the cost of borrowing for local governments
  • Qualified Tax Credit Bonds. These instruments include Qualified Zone Academy bonds, Qualified School Construction Bonds, Clean Renewable Energy Bonds and Qualified Forestry Conservation bonds.

 

In the coming weeks and months, many local government professionals will have discussions about raising revenue or reducing expenditures as a result of this statute.