WASHINGTON - The House Ways and Means Committee yesterday voted 24 to 13 along party lines to approve a revised $275 billion package of economic stimulus tax measures that would expand several bond provisions.
The changes to the bond provisions were included in a so-called manager's amendment that was introduced by chairman Charles Rangel, D-N.Y.
In one change lauded by muni market participants, Rangel clarified that 501(c)(3) borrowers like nonprofit hospitals and charities can be considered small issuers under the bank deductibility provision in the package, which would allow banks to deduct 80% of the cost of buying and carrying tax-exempt bonds sold by issuers whose annual bond issuance is $30 million or less. The current annual issuance limit is $10 million.
The new small-issuer provision would permit banks to buy bonds from nonprofit organizations that borrow less than $30 million annually.
Earlier versions of the package had stated that small nonprofits could only qualify as small issuers if part of a pooled deal, causing market participants to complain it would be ineffective since small borrowers do not typically participate in pooled financings at this time.
"That's a very, very big liberalization," said Frederic J. Ballard Jr., a partner at Ballard Spahr Andrews & Ingersoll LLP. "That means that a county authority could issue $30 million of bonds for one hospital and $30 million of bonds for another hospital."
Under the package, all tax-exempt bonds issued in 2009 and 2010 would be exempt from the alternative minimum tax. Currently, only housing bonds are exempt from the corporate and individual AMT.
"It is an important complement to the bank bond provisions" in the bill that would allow banks to buy more muni bonds, said Michael Decker, co-chief executive officer of the Regional Bond Dealers Association. "I think the corporate AMT provision is important for property and casualty companies and banks."
Currently, corporations are required to take interest earned from all tax-exempt bonds except housing bonds into account when calculating their liabilities under the AMT, and individuals must take the interest earnings from private-activity bonds into account in determining such liabilities.
However, the AMT provision would be limited for refundings and would only apply to bonds that were issued in 2009 or 2010 and later refunded.
Other bond-related changes Rangel made to the legislation include authorization of an additional $1 billion a year for two years for qualified school construction bonds, a new type of tax-credit bond that would be created under the package, bringing the total authorization to $22 billion over 2009 and 2010.
He also expanded the provision authorizing $2.4 billion of qualified energy conservation bonds to include loans and grants for green community programs.
In addition, the recovery zone bond program for economically distressed areas - that would authorize $10 billion of recovery zone economic development tax credit bonds and $15 billion of recovery zone facility private-activity bonds - was expanded to include any area of general distress, rather than areas hit specifically by job losses. The credit rate on the recovery zone economic development bonds was increased to 55% from 40%.
The final vote came after a contentious and partisan meeting, with Republicans introducing a number of amendments to modify Rangel's package and Democrats defeating them.
Although much of the discussion focused on non-bond measures, Rep. Sam Johnson, R-Tex., questioned a provision of the bill that would require laborers working on projects financed by certain bonds to be paid a prevailing wage in accordance with the Davis-Bacon Act. These would include clean renewable energy bonds, qualified energy conservation bonds, school construction bonds, qualified zone academy bonds, and recovery zone economic development bonds.
The Depression-era labor law mandates that prevailing wages be paid on federally funded construction projects, and Republicans tend to oppose it.
Johnson said the requirement hurts the efficacy of bond programs.
"Part of the reason CREBs haven't been successful is because of the pay-scale," he said.
Committee Democrats also defeated an amendment from Rep. Kevin Brady, R-Tex., that would create a one-year "patch" for the AMT.
But Rep. Richard Neal, D-Mass., said that the stimulus legislation is not the place for it and that a patch will be approved by the committee in other legislation before the end of the session.