The Senate yesterday approved a legislative package that would extend bond-related and other expiring tax provisions, while market participants pushed key members of Congress to make permanent two stimulus provisions that give banks more incentive to buy tax-exempt debt.
House Ways and Means Committee chairman Sander Levin, D-Mich, told reporters that differences in the House and Senate versions of the “extenders” legislation will have to be resolved via a conference committee. However, the muni bond provisions should remain unscathed since they are identical in both bills.
The Senate cleared its legislation yesterday afternoon by a vote of 62 to 36, while the House signed off on its “extenders” bill in December.
The bills would allow New York City issuers to sell Liberty Zone bonds — a special type of private-activity bond created to help boost economic development in lower Manhattan following the Sept. 11, 2001, terrorist attacks — through the end of the year.
The authority to issue them expired at the end of last year.
The bills also would extend for another year relaxed mortgage-revenue bond requirements for areas affected by federally declared disasters so that issuers could sell tax-exempt housing bonds to finance the repair or reconstruction of homes or rental units that were damaged or destroyed.
Another provision would extend by one year the tax incentives for District of Columbia empowerment zones — economically distressed areas where businesses are eligible for tax incentives, including tax-exempt bonds, to spur development.
Tax-exempt bonds can be issued in these areas to provide low-cost financing to private businesses, provided that at least 35% of the business’ employees are residents of the zones for the life of the bonds.
An additional provision would extend through 2010 the ability of taxpayers to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction typically permitted for state and local income taxes.
Meanwhile, 12 muni market groups, including the Government Finance Officers Association and the National Association of Bond Lawyers, sent a three-page letter urging leaders of the tax-writing and banking committees to make permanent two American Recovery and Reinvestment Act provisions slated to expire at the end of the year that have “brought considerable relief” to small local governments and nonprofit entities.
The first provision increases to $30 million from $10 million the small-issuer limit for bank-qualified bonds, and allows the limit to be applied to individual borrowers participating in conduit deals, rather than the conduit issuer.
The groups pointed out that before ARRA, the limit had not been raised for 23 years and was not indexed to inflation, meaning fewer issuers every year could market their bonds to banks.
The second provision modifies the 2% de minimis rule for financial institutions to include banks.
Under that provision, financial institutions that invest in tax-exempt bonds can deduct 80% of the cost of buying and carrying tax-exempt bonds to the extent that their tax-exempt holdings do not exceed 2% of their assets.
The groups argued that for some small governments and charities, these provisions offer the only way to sell bonds because they “would find going to the public market uneconomical if not impossible.”
Charles Samuels, a lawyer with Mintz Levin Cohn Ferris Glovsky & Popeo PC and counsel to the National Association of Health and Educational Facilities Finance Authorities, which signed the letter, said the provisions have been effective and proved their worth as stimulative tools.
“We said we had many projects which were 'shovel ready’ and we delivered,” he said. “It is critical that Congress continue this lifeline for small borrowers.”
