Treasury Proposal to Relax Public Approval Requirements Draws Fire

Several community and labor groups are opposing the Treasury Department's proposed regulations that would ease the requirements for municipal issuers to obtain public approval for projects funded by private-activity bonds, warning they would all but remove public input from the process.

However, one group of issuers, the National Association of Health and Educational Facilities Finance Authorities, is asking the Treasury to grant issuers even more flexibility in how they handle publicly approved bond issues.

When Treasury officials proposed the new regulations in September, many market participants praised them for trying to streamline a process considered arduous by some and for trying to give issuers seeking approval for projects more flexibility to change their plans.

But community and labor groups are complaining the proposed changes would deprive the public of opportunities to weigh in on projects.

One letter, written by the New York-based Good Jobs New York and the Fiscal Policy Institute, in conjunction with the Washington, D.C.-based Good Jobs First, argued that the proposed regulations would be "grossly corrosive" to the public hearing process.

"If the proposed changes are approved, they will grossly impair and diminish public input, excluding meaningful participation and fueling public cynicism about government," the groups stated in a letter.

Instead of cutting the time to prepare for a hearing to seven days from 14, which "would almost completely preclude meaningful public participation," the groups recommended the Treasury adopt New York City's practice of giving the public a 30-day advance notification of a hearing.

The groups also criticized a proposed provision that would allow an issuer to simply provide a general description of the project in the public approval notice. Notifying the public of the details of a project is vital, they said, adding: "There is no surer way to disenfranchise a community than to provide incomplete information about an economic development project."

Among other changes, the proposed regulations would also permit issuers to cancel the hearing if no parties announce their intentions to testify.

The International Brotherhood of Teamsters criticized the proposal in a comment letter, saying: "This change would increase the likelihood that concerned citizens would be barred from participating in the public approval process."

NAHEFFA's letter asked Treasury to be more flexible in allowing issuers to deviate from an originally approved project before it would be considered "substantially deviated" and would have to undergo the approval process again.

The group also requested that the final regulations explicitly allow issuers to use the bond proceeds originally intended to finance a project to pay for working capital costs, a need they said is particularly relevant in the current recession.

In addition, the group asked Treasury to expand to 10% from 5% the amount an issuer can deviate from a publicly approved project without seeking approval again.

When the Treasury proposed the rule changes in September, it asked market participants to comment on them by Dec. 9. The department plans to hold a public hearing on the proposed changes on Jan. 26.

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