SUPPORT FOR MUNICIPAL BOND MODERNIZATION

Advance refunding bonds allow states and localities to refinance existing debt with the greatest flexibility, resulting in substantial reductions in borrowing costs. H.R. 5003 was introduced on February 13th, 2018, to amend the Internal Revenue Code of 1986 to reinstate advance-refunding bonds. This legislation would fully reinstate tax- exempt advance refundings, including private activity bonds and qualified 501c (3) bonds.

The Code provides for a $15 million private business use/payments limitation facilities that are part of the same project. The per-project limitation is a punitive rule that singles out governmentally owned electric output facilities from other bond financed governmentally owned assets and systems. NYAPP supports the repeal of this provision. At a time in which additional electric output and smart-grid transmission and distribution facilities are needed to meet a rising energy needs, the repeal of this per-project limitation would provide needed operational flexibility.

The Code provides for a maximum $15 million private business use/payments limitation on all tax-exempt governmental bonds unless volume cap is allocated to such excess under Section 146 of the Code. This $15 million limitation, like the $15 million per-project limitation of Section 141(b)(4), creates undue complexity for municipal issuers and interferes with a policy goal of creating a bright line (and administrable) 10 percent private business use test.

The investment yield and arbitrage rebate restrictions are duplicative and create an unnecessary compliance burden for state and local governments.

Governments issuing $10 million or less in bonds per calendar year can designate those bonds as bank-qualified, which allows them to by-pass the traditional underwriting system and sell their tax-exempt bonds directly to local banks. Set in 1986, the limit should be increased to $30 million now and then tied to inflation. Additionally, the provision should be modified to apply to governmental issuers and 501(c)(3) organizations separately and permit the 501(c)(3) organization to provide the designation. Finally, this provision should also allow the designation to be made at the time of issuance or at any time up to February 15th of the calendar year following the calendar year in which the bonds were issued.

Credit payments to issuers of Build America Bonds were not intended to be subject to budget sequestration. This would conform treatment of these payments to treatment of other tax credit payments.