Report: Restrictions on Tax-Exempt Bonds Would Damage Hospitals, Economy

If the federal government limits or eliminates the tax exemption on tax-exempt bonds, it would cost nonprofit hospitals and healthcare organizations anywhere from $5.8 billion to $16 billion every year in additional interest expenses, according to a report from the National Association of Health and Educational Facilities Finance Authorities.

Nonprofit hospitals and health systems generally issue tax-exempt, or municipal, bonds to fund large-scale capital projects, such as building a new hospital. The bonds have lower interest rates because bond holders are not subject to certain federal, state and local taxes. From 2003 to 2012, Thomson Reuters estimated municipal bonds totaled $450 billion, mostly to fund healthcare and education projects.

According to the NAHEFFA report, if the federal government decided to cap the value of the tax exemption on municipal bonds used by nonprofits to 28 percent — which President Obama proposed in his fiscal year 2014 budget in April — then hospitals, health systems and other nonprofit organizations would have to pay billions in additional interest expenses. If the tax exemption were eliminated altogether from the funding tool, then interest expenses would be roughly $16 billion extra every year, based on data from the past decade.

The NAHEFFA said this could have severe impacts on the hospital and health system market. Many organizations would likely scale back on their borrowing and capital project investments, which would negatively impact construction jobs and other employment dependent on community projects.

"Thousands of hospitals, clinics, colleges, job centers and boys and girls clubs throughout the United States depend on tax-exempt bonds to access capital," NAHEFFA President Pamela Lenane said in a news release. "Often, particularly in smaller communities, these nonprofits are the largest employers in the area and engines for economic growth."

More Articles on Hospitals and Bonds:
8 Hospitals With Tax-Exempt, Fixed-Rate Bond Issues in Past Month
New Capital Acquisition Strategies in the Post-Recession Era
A Mixed Bag: 5 Things to Note on the Hospital Debt Markets for 2013

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