For years, the city of Prairie Village has worked on a plan to remake its municipal complex, including city hall and its police department facilities.
But before the city can start construction on the $30 million project — groundbreaking could take place later this year — city leaders are warning that potential changes to municipal bond tax exemptions at the federal level could put financing for the project in jeopardy if the project were to stray from its scheduled timeline.
Prairie Village isn’t the only city sounding the alarm about Congressional Republicans’ reported proposal to get rid of long-standing tax exemptions on municipal bond interest.
Cities in Johnson County and across the country — and organizations that advocate for them — warn that if Congress lifts that tax exemption, cities would see higher borrowing costs and, ultimately, have less money to pay for city projects.
Nathan Eberline, executive director for the League of Kansas Municipalities, said local infrastructure projects — everything from routine road and bridge repairs to bigger projects like the new Prairie Village city hall — could face uncertainty if tax exemptions on municipal bonds are removed.
“You would have far less capacity for cities to take care of their infrastructure needs, that’s basically what it comes down to,” Eberline said. “If people don’t purchase those bonds, the dollars aren’t available to proceed with the building projects.”
What municipal bonds are and how JoCo cities use them
Municipal bonds may be an arcane topic to most Johnson Countians, but over the years they have helped finance everything from the roads we drive on to the schools our children attend.
Similar to a loan, a municipal bond is a form of debt issued to public entities like cities and school districts to pay for infrastructure projects.
Federal tax exemptions on municipal bonds have been in place since 1913, except for a brief stint in 2017 after the Tax Cuts and Jobs Act was approved during the first Trump administration.
Without tax exemptions on the interest they earn, municipal bonds could become less attractive to investors and ultimately become more difficult for local governments to issue or sell.
Eberline said federal tax exemptions on municipal bond interest are what attract many investors to buy them.
Without people buying municipal bonds, Eberline said, cities wouldn’t have the money necessary to complete core infrastructure projects.
“If you look back from a historical standpoint about when those bonds were not tax-exempt — they have been now for over 100 years — the risk was that there wouldn’t be a market for those bonds to exist,” Eberline said.
“If that happens, it would throttle any sort of ability for locals to be able to provide (infrastructure),” he added.
The $4 trillion municipal bond market is key to financing public infrastructure projects across the country. Municipal Bonds for America, a coalition of investors, underwriters and bond counsel, said these types of bonds have touched “just about every aspect of American life.”
“Municipal bonds finance our schools, hospitals, highways, and bridges. Bonds also help support higher education, water and sewer facilities. The airports we use, the ports that bring in imported goods — all essential components of the U.S. economy — are funded by bonds,” the coalition said in a recent statement.
“In the last decade, it is estimated that more than $2 trillion of infrastructure investments have been financed through the municipal bond market, with figures expected to increase in the coming years following historical federal funding to state and local government,” the coalition said.
Johnson County cities regularly use municipal bonds as a way to pay for infrastructure.
Currently, Mission is looking to issue municipal bonds to complete a large-scale rehabilitation of Johnson Drive between Lamar and Metcalf avenues.
In Olathe, city officials say municipal bonds go toward projects related to the city’s libraries, parks, roads and other infrastructure.
Overland Park bonded several street improvement projects and is also borrowing money through municipal bonds for the $34 million reconstruction of its downtown farmers market area.
Earlier this year, Overland Park penned a letter to its Congressional representatives arguing that if municipal bond interest were taxed, then it would result in higher borrowing costs for the city and would lead to “reduced scope for public projects and increased property taxes.”
More recently, Merriam has proposed using municipal bonds to build a new grocery store and restaurant as part of a larger project.
While many communities use municipal bonds for standard projects like street rehabilitation, Prairie Village typically pays cash for most of its projects, said Keith Bredehoeft, the city’s public works director.
He said Prairie Village has borrowed money in recent years for specific projects, such as a new $10 million public works facility or buying streetlights from Kansas City Power and Light (now Evergy).
Prairie Village also used municipal bonds immediately after the 2008 recession to take advantage of lower interest rates and complete extra road improvement projects citywide, Bredehoeft said.
What could taxable municipal bonds mean for cities?
In 2017, Congress briefly revoked the tax-exempt status of municipal bonds as part of the Tax Cuts and Jobs Act.
But the tax exemptions on interest were soon reinstated after an outcry from organizations like the National League of Cities.
To extend the tax cut provisions of the 2017 law, Congress now needs to offset costs in other areas.
A U.S. House of Representatives Ways and Means Committee document, leaked earlier this year, “suggested eliminating the tax-exempt status of municipal bonds” to fund the extension of the 2017 law, according to the League of Minnesota Cities.
Proponents of removing the tax-exempt status of municipal bonds see it as a way to generate revenue and offset other tax breaks in President Donald Trump’s $4.9 trillion tax plan.
However, organizations like the National League of Cities and the Government Finance Officers Association are advocating for tax-exempt bonds to remain untouched.
The debate in Washington is far from over, but Jeff White of Columbia Capital, who serves as Prairie Village’s municipal financial advisor, takes the threat to municipal bonds’ tax-exempt status seriously.
White told the Prairie Village City Council on May 5 that Congress is looking to cut $900 billion to $1.5 trillion to cover the cost of preserving the 2017 law’s tax breaks, which expire at the end of the year.
Removing tax exemptions on municipal bond interest could get Congress 20% of the way to meeting that goal, White said.
“It would not surprise me at all to see at least some portions of the municipal tax exemptions on the House’s cutting block, it actually wouldn’t surprise me at all to see the entire exemption on the House’s cutting block in the first round of budget discussions,” White said.
White encouraged the city to avoid borrowing any money in the fourth quarter of 2025 because, if Congress does remove tax exemptions from municipal bond interest, then cities and other local governmental entities may rush to issue bonds before new tax provisions take effect at the start of 2026.
As a result, the municipal bond market could get “sloppy,” he said, and financing for projects, including for a new city hall, could get delayed.
City hall and police project timeline so far not impacted
In Prairie Village, city officials are keeping one eye on the budgetary debates in Washington, while training another on the impending city hall project.
Both Bredehoeft and Prairie Village Finance Director Jason Hannaman told the Post in separate interviews that threats to remove tax exemptions for municipal bond interest have so far had no impact on the city hall and police department project schedule.
City staff told the city council in recent months that the goal is to present a construction contract with a guaranteed maximum price for the project by September or October. Actual construction work could begin soon after that.
Bredehoeft said the city needs at least a few months before that to start issuing bonds before a final contract is considered and work begins.
“It’s very common to have that money a little bit earlier than right when you start construction,” Bredehoeft said, adding that there is always the possibility that the city needs to advance money for certain materials.
The possibility of municipal bonds losing their tax-exempt status would only become a concern if that timeline is delayed, Hannaman said, potentially pushing the issuance of bonds into the final months of the year.
Councilmembers raise concerns, question municipal bond threat
Some Prairie Village councilmembers are sounding the alarm about the potential for Congress to remove municipal bonds’ tax-exempt status, but others have pushed back, wondering if the talk of municipal bonds is more “fear-mongering” than reality.
During the May 5 city council meeting, Mayor Eric Mikkelson said that at a National League of Cities conference in Washington, D.C., earlier this year, U.S. Sen. Jerry Moran, a Republican from Kansas, told city leaders “he is opposed” to removing tax exemptions from municipal bonds.
Mikkelson said Moran “understands what a devastating impact this would have on cities and infrastructure.”
Moran’s office did not respond to the Post’s request for comment for this story.
Mikkelson also said that “if there is any hint that the council is going to change its mind” about the municipal complex project, to make those decisions in the next two meetings in May and June.
At the same May 5 meeting, Councilmember Ian Graves said the $1.5 trillion in cuts Republicans are seeking in the federal budget is “going to come for this bond market.”
But Councilmember Lori Sharp pushed back, saying the timeline for the city hall and police department project “shouldn’t be based on fear” around municipal bonds possibly losing their tax-exempt status.
She said municipal bonds’ tax status “gets brought up a lot and it has not happened.”
Sharp has been part of a contingent on the city council that has voiced support for a recent effort to put the city hall piece of the project up for a public vote this fall. (Sharp, on the other hand, has publicly stated her support for the city police department needing more space.)
City officials have rejected the idea of a public vote and have consistently kept to the city’s official timeline for the project.
In the context of wanting to see a public vote, Sharp suggested discussion of municipal bonds’ tax exemptions was “fear-mongering” meant to rush the project to completion.
“Is this truly a legitimate concern that we should bump up the whole timeline because of this?” she asked during the May 5 meeting.
Bredehoeft and Hannaman both told the Post that any talk of a possible change to municipal bonds’ tax-exempt status is not accelerating the city’s timeline.
White, the city’s bond counsel, responded directly to Sharp at the May 5 meeting, saying the threat to cut tax exemptions from municipal bond interest “is not fear-mongering.”
“This is a real threat and a real worry,” White said, adding that such a threat has not “arisen in this way in an entire generation.”
Go deeper: Watch the city council’s entire discussion online here, starting at 3:36:53.
