The expansive, nearly 900-page bill passed by Congress and signed into law by President Trump is likely to affect city budgets, services, and infrastructure planning.

On July 4, President Trump signed into law the “One Big Beautiful Bill Act” (OBBBA), following its narrow passage by the House and Senate. The OBBBA is an expansive, nearly 900-page budget reconciliation law that extends 2017-era tax cuts and includes a wide range of provisions that may affect city budgets, services, and infrastructure planning.

While the League, in coordination with our national partners, continue to analyze how the law will impact city operations, the following are key takeaways for cities now that the bill has been enacted:

Municipal finance and infrastructure

• Municipal bonds: Despite numerous discussions about eliminating the tax-exempt status for municipal bonds, the final bill did not include that provision and retained the tax-exempt status for municipal bonds.
• Inflation Reduction Act (IRA) tax credits: The law repeals or restricts many tax credits that qualified for elective pay, which allows cities and other tax-exempt entities to receive direct payments in lieu of tax credits for certain energy and climate resiliency projects. While the elective pay provision is unchanged, the law imposes more aggressive phase-out timelines for certain credits and eliminates others entirely, including the credit for commercial clean vehicles.
• Elimination of certain grants: The law rescinds unobligated funds from several IRA programs and eliminates specific initiatives, including the Greenhouse Gas Reduction Fund, Environmental Justice Block Grants, Climate Pollution Reduction Grants, State-Based Home Energy Efficiency Contractor Training Grants, and the Neighborhood Access and Equity Program.

Housing and economic development

• Expansion of Low-Income Housing Tax Credits: The law increases allocations for 9% Low-Income Housing Tax Credit properties by 12% and lowers the private activity bond financing threshold from 50% to 25% of land and building costs for properties placed into service after Dec. 31, 2025.
• Opportunity Zones: The law makes permanent the 2017-era Opportunity Zones program, which offers tax benefits for reinvesting capital gains in designated communities. It also eliminates capital gains taxes on investments held in these zones for at least 10 years.
• National Environmental Policy Act: A new White House Council on Environmental Equality program will allow project sponsors to pay an optional fee for a fast-tracked environmental review process.

Other issues

• AI regulation preemption: A House proposal to impose a 10-year moratorium on state-level regulation of artificial intelligence systems was removed by the Senate and did not make it into the final bill.
• No tax on overtime and tips: The law allows employees who regularly receive tips to deduct up to $25,000 in tips from their federal taxable income. It also permits a deduction of up to $12,500 in overtime pay. Learn more about the new law regarding taxing overtime and tips. 
• Medicaid and Supplemental Nutrition Assistance Program (SNAP): The law requires states to implement work requirements for Medicaid and SNAP participants and shifts more administrative and financial responsibility to states. States may also bear a larger share of Medicaid program costs as federal contributions decrease.

LMC staff take

Some impacts of the law are immediately clear, such as changes to the clean energy tax credits and the elimination of many IRA-funded grant and loan programs. Others, including potential ramifications of Medicaid funding cuts, are less certain. Given that, the Minnesota Legislature may choose to revise the state budget to address the increased financial burden caused by the reduced federal funding. This could affect cities if funding is cut from state-level programs that provide direct or indirect support to municipalities.

We are also closely monitoring how the state might reallocate resources to backfill lost federal funding. These adjustments could shift pressure onto other budget priorities that are critical to cities

Read a summary from the National League of Cities about the local impacts of the “One Big Beautiful Bill.”

Read more news articles.