The Need to Eliminate the “Black Tax” in the Municipal Bond Market
WHEREAS, The National Association for the Advancement of Colored People ("NAACP") believes municipalities with predominantly Black populations that issue municipal bonds deserve equitable rates of interest and equitable access to potential investors due to the immense benefits such bonds provide to the impacted populations; and
WHEREAS, Municipal bonds ("Munis") are "debt obligations issued by public entities that use the loans to fund public projects such as the construction of schools, hospitals, and highways." Investors in Munis loan money to the issuing public entity and then have their money, plus interest, returned to them once the bonds mature; and
WHEREAS, Studies have shown that Historically Black Colleges and Universities ("HBCUs") pay a higher underwriting fee when issuing Munis. Also, municipalities with higher populations of Black residents pay higher rates of interest on their Munis. This difference in fees is referred to colloquially as the "Black Tax"; and
WHEREAS, Underwriters are companies that market and negotiate the price of Munis to investors; and
WHEREAS, The amount of compensation paid to underwriters of non-HBCU Munis on average is substantially less than that paid to underwriters of HBCU issued Munis. Because Munis provide funds for schools to expand, renovate, or meet student needs, high fees are a disproportionate drain on the finance of HBCUs; and
WHEREAS, Cities with predominantly Black populations pay significantly higher interest rates for Munis than majority white cities. It is estimated that the increased interest totals up to $900 million nationwide per year. This significantly contributes to the cycle of debt, poor infrastructure, and overall disinvestment in Black communities. This also compounds the adverse effects of climate change for Black communities because they cannot properly prepare for natural disasters. If Black communities wish to provide more weather resistant water pipelines, hygienic sewage systems, proper schools, stable roads, and more, they must do so at the risk of going bankrupt over astronomical interest payments; and
WHEREAS, For example, Detroit, Michigan fell victim to extreme debt in 2013 when it filed for bankruptcy with $18 million in general obligation bond debt. At the time, Detroit was the 18th largest city in the nation, and Black residents made up 80.3% of the population, a stark difference from 81.5% of the State of Michigan that was white. Then Governor Rick Snyder commented that the bankruptcy was "60 years" in the making, which correlated to the period of time when "white flight" began out of Detroit. Articles note this bankruptcy was a result of crime or insufficient property taxes being collected, which are byproducts of poverty, which is a known consequence of systemic racism; and
WHEREAS, In 2023 the City of Prichard, Alabama's residents could no longer bear the financial burden required to maintain the city's water system. This required the majority Black suburb to issue a $55 million bond, which it later had to default on due to its unsustainable interest rate. And the City of Baltimore in 2016, when faced with a similar water system issue, cut off the water supply to 42,000 residents. Situations like these will continue to happen across the nation so long as the "Black Tax" exists.
THEREFORE, BE IT RESOLVED, that the NAACP calls upon state legislators to examine potential remedies, pass legislation and promulgate rules that eliminate the "Black Tax" on Munis issued by HBCUs, including but not limited to, providing state tax exemptions for Munis issued by HBCUs.
BE IT FURTHER RESOLVED, that the NAACP calls upon state legislators to pass laws and promulgate rules that eliminate "Black Tax" on Munis issued by municipalities with predominantly Black and other minority populations; including but not limited to, providing state tax exemptions for Munis issued by municipalities with predominantly Black and other minority populations.
BE IT FINALLY RESOLVED, that the NAACP calls upon Congress and the federal executive branch to examine potential remedies and take any and all actions they can to eliminate the "Black Tax" on Munis issued by HBCUs and municipalities with predominantly Black and minority populations, including but not limited to, designating Munis for HBCUs and municipalities with predominantly Black and minority populations as triple tax exempt (i.e. applicable to federal, state and local taxes).