WASHINGTON - Congress is expected within the next two days to pass a $789 billion economic stimulus bill that contains all of the proposed muni bond initiatives, mostly at the larger authorization levels, as well as a new provision that would eliminate the alternative minimum tax for refundings of bonds that were issued during the last five years.
Although House and Senate conferees announced they had reached a deal on the bill Wednesday, details of the American Recovery and Reinvestment Act of 2009 did not emerge until late yesterday afternoon. While it was possible that voting would start on the bill last night, House members said it was more likely they would vote on it today and Senate members were considering a vote on Saturday.
House Speaker Nancy Pelosi, D-Calif., said yesterday that Congress will still meet its schedule of sending the bill to President Obama before Monday.
The final bill would exempt all tax-exempt bonds issued in 2009 and 2010 from the AMT, and also includes a provision pushed by Senate Finance Committee chairman Max Baucus, D-Mont., a conferee, that would expand AMT relief to any refundings of bonds issued between Dec. 31, 2003, and Jan. 1, 2009. The refunding provision was included in the final bill even though Baucus had been unsuccessful in getting it in the Senate bill.
Peter Warren, president of the Education Finance Council here, said that the exemption of some refundings from the AMT will help struggling student-loan issuers.
"Exempting refunding bonds from the AMT will enhance the ability of nonprofit student loan issuers to refinance their auction-rate bonds," he said. "This will increase their ability to finance new student loans by freeing up equity currently trapped in the ARS trusts and by reducing the financing cost of their outstanding portfolios."
However, the final bill includes a more limited taxable bond option program than what was approved in either the House or Senate. It would allow issuers of governmental bonds to issue taxable debt in 2009 and 2010 for capital expenditures in exchange for either a direct cash subsidy from the federal government or a tax credit for investors.
Draft language indicated the tax credit would equal 35% of the interest paid on the bonds. The House version would have made the credit option permanently available for bonds issued after 2010, and the Senate version would have offered a 40% credit or subsidy for governments that issued $30 million or less of bonds per year.
Many of the bond provisions that were broader in the House version were included in the final bill.
One would authorize $22 billion over the next two years in qualified school construction bonds, with $400 million carved out specifically for schools run by tribal governments. The $22 billion is larger than the $10 billion that was in the Senate bill.
Another provision would authorize $15 billion of private-activity recovery zone facility bonds and $10 billion of recovery zone economic development tax credit bonds, which are intended to be used to finance projects in areas hit hard by unemployment.
The $25 billion total amount is almost double the $15 billion that was in the Senate bill. All states would receive at least 1% of the recovery zone bond authorizations, with the remaining amounts to be allocated based on increases in unemployment since 2007.
The final bill also includes three bond provisions that were in the Senate bill but not the House measure. One would permit small issue industrial development bonds issued in 2009 and 2010 to finance facilities that create or manufacture intangible facilities or projects, such as software or biotechnology, including certain physical components. Current tax law only permits small issue IDBs to be used for facilities creating tangible products.
Another provision would allow high-speed rail projects to qualify for private-activity bond financing if the trains can reach a top speed of 150 miles per hour. Current law allows the bonds to be issued for projects involving trains traveling at least that speed.
The bill also would raise the federal debt limit by $825 billion to $12.140 trillion.
The other bond provisions in the bill, which had been approved by both the House and Senate, included two that would pave the way for banks to buy more muni bonds in 2009 and 2010.
One would modify the 2% "de minimis" rule for financial institutions to include banks so that they would be able to deduct 80% of the cost of buying and carrying tax-exempt bonds issued in 2009 and 2010 to the extent that their tax-exempt holdings do not exceed 2% of their assets.
The other would expand to $30 million from $10 million the "small issuer exception" for bank-deductible bonds. Under current law, banks can deduct 80% of the cost of buying and carrying the tax-exempt bonds sold by issuers whose annual bond issuance is less than $10 million. The bill also would apply the new higher $30 million limit to individual borrowers, rather than the issuer, in conduit financings.
"The municipal bond community has received significant relief in this legislation and is very grateful," said Charles Samuels, a lawyer with Mintz Levin Cohn Ferris Glovsky & Popeo PC here who is counsel to the National Association of Health and Educational Facilities Finance Authorities. "If the language is what we believe it is, the bank deductibility liberalization, for example, will allow immediately some relatively small but very much needed governmental and nonprofit private placements."
"This stimulus bill provides crucial tax law changes that will ease borrowing costs for cities and states and expand the market for their bonds - both crucial steps towards ensuring the nation has the hospitals, bridges, and other infrastructure it needs," the Securities Industry and Financial Markets Association said in a statement.
The legislation also would authorize an additional $2.4 billion of energy conservation bonds to finance projects to reduce greenhouse gases, as well as an additional $1.6 billion of clean renewable energy bonds to finance renewable energy projects. These bonds would be taxable tax credit bonds that pay investors a tax credit in lieu of tax-exempt interest payments.
Tribal governments would be authorized to receive an additional $2 billion of tax-exempt bonds in 2009 and 2010 and would not have to limit the use of the bonds to projects providing an "essential government function," except for casinos and projects off the reservation. The provision would put tribal governments on par with state and local issuers.
The bill also would authorize an additional $1.4 billion of qualified zone academy bonds for 2009 and 2010. QZABs can only be used for the renovation or rehabilitation of schools, not new construction.
In one of the few cases where the final bill contains the more restrictive provision from the House and Senate measures, it would delay until 2012 the enactment of a 2005 law requiring all state and local governments to withhold 3% of all payments to government contractors for tax purposes. Government groups have long opposed the law, calling it an unfunded mandate, and were pushing for the House proposal, which would have permanently repealed it.
SPENDING PROVISIONS
The final bill would provide $311 billion in spending and sought-after changes to private-activity bond financing for airport issuers. About $192 billion of the funding would directly benefit state and local governments, with a heavy emphasis on education funding.
A summary provided by the Senate Appropriations Committee showed that $53.6 billion - the largest chunk of expenditures in the conference report - would go directly to states through a State Fiscal Stabilization Fund. That would include $39.5 billion distributed through current formulas to prevent job cuts in local school districts, to modernize schools, and for other unspecified purposes. It also would provide $5 billion in bonus grants to states that meet certain performance goals, and $8.8 billion to states for public safety and other needs such as public school or higher-education facility renovations.
In addition, it would include a record-high $12.2 billion of federal matching funds for special education.
The conferees tacked an extra $500 million onto the Senate's approved spending for highway and bridge construction, for a total of $27.5 billion. They also assigned $8.4 billion to transit and bumped up rail funding slightly to $9.3 billion from previous proposals..
The transportation spending would be "an important down payment," said Jeff Solsby, spokesman for the American Road and Transportation Builders Association.
"The success on this stimulus investment doesn't change the fact that we still have a looming surface transportation reauthorization bill pending, and an FAA reauthorization bill pending, and we've got to come to terms with the revenue crisis facing the highway trust fund," he said.
Lawmakers also agreed to include $1 billion of community development block grants that had been passed by the House but not the Senate and went with the Senate's $6 billion total appropriation for clean and drinking water state revolving funds. The SRF funding is $2 billion lower than the House proposal for SRFs to finance local water and sewer projects.
Benefiting publicly owned utilities, the bill would offer $7.2 billion for broadband, $6.3 billion for energy efficiency and conservation grants, and $11 billion for "smart grid" investments that would help modernize the electricity transmission grid, a long-standing priority of the American Public Power Association.
The airport community was pleased with $1.1 billion for airport improvement program grants, which would go toward capital projects, according to the Airports Council International-North America. They also lauded the AMT-bond refinancing and AMT-exempt private-activity bond provisions included by conferees.
The bill also would provide a total of about $4 billion for a public housing capital fund to help local public housing agencies to address a $32 billion backlog of capital needs, as well as $2 billion for the redevelopment of abandoned and foreclosed homes, among other proposals.
