Tax Policy:

Tax-Exempt Bond Issuance Costs

GGD-90-9BR: Published: Dec 18, 1989. Publicly Released: Dec 18, 1989.

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Pursuant to a congressional request, GAO reviewed state and local governments' tax-exempt bond issuance costs and how proposed legislation would affect those costs.

GAO found that: (1) issuance costs from bonds sold to private enterprises in 1985 ranged from 2.2 to 4.1 percent of bond proceeds; (2) bond underwriter spreads comprised 48 to 88 percent of issuance costs, although underwriting spreads decreased by about 40 percent from 1982 to 1988; (3) additional issuance cost limits did not seem justified, since underwriting services were relatively competitive and reasonably priced; (4) the proportion of private enterprise bonds which would have exceeded the proposed cost limits was 44 percent for 1985 and 37 percent for 1986; and (5) the proposed issuance cost limits could reduce state and local governments' bond issuance capabilities, unless bond issuers developed alternative cost distribution and classification methods.

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