SANTA ANA PUEBLO, N.M. — Two senators plan to introduce legislation as soon as today to permanently extend a popular provision in last year’s stimulus law that was designed to encourage banks to buy municipal debt from small issuers but would expire at the end of the year without congressional action.
Sen. Jeff Bingaman, D-N.M., and Sen. Mike Crapo, R-Idaho, plan to introduce the bill, which would extend the $30 million small-issuer limit for bank-qualified bonds and peg that limit to inflation in the future.
“This provision has helped small communities in New Mexico and across the country meet their infrastructure needs, creating jobs at a difficult economic time for us,” Bingaman said Friday. “I think it makes sense to make this a permanent part of the law.”
Derek Dorn, a senior counsel to Bingaman who spoke here during the National Federation of Municipal Analysts’ annual conference, said that anecdotal evidence suggests the program has been incredibly successful, with bank-qualified issuances more than doubling last year to about 6,000 issues totaling $33 billion.
Specifically, the stimulus law allows banks to deduct 80% of the costs of buying and carrying tax-exempt debt sold by borrowers whose annual issuance is no greater than $30 million, an increase above the previous limit of $10 million. In addition, the stimulus law allowed for the $30 million limit to be applied to individual borrowers participating in conduit deals, rather than the conduit issuer.
However, Dorn suggested it is unlikely that the forthcoming bill will include a related 2% de minimis provision allowing banks to receive beneficial tax treatment for holding and carrying municipal debt.
The de minimis provision, which is not pegged to the small-issuer limit, was intended to expand the scope of muni purchasers. However, market participants said there is no clear evidence that it has been helpful to small issuers that would not otherwise have been able to come to market.
Though Dorn would not rule out the de minimis provision’s inclusion, he noted that when it and the bank-qualified provision were scored together by the Joint Tax Committee, 80% of the revenue cost, or about $2 billion, was associated with the de minimis extension.
“It’s not as airtight of an argument and it certainly has not been as impactful for states like New Mexico and Idaho, where your two leading champions come from,” he said.
Dorn’s comments came as the Government Finance Officers Association and other muni industry groups were expected to send a letter to leaders of the House Ways and Means Committee and Senate Finance Committee on Friday, encouraging them to include the bank-qualified extension in an upcoming “extenders” package that would extend a number of expiring or expired tax cuts. Bingaman and Crapo are both on the Senate Finance Committee.
Several muni groups have written repeatedly to Congress about the need to keep the small-issuer limit at $30 million as well as its application at the borrower level.
Many of the same groups welcomed the forthcoming legislation on Friday. Susan Gaffney, director of GFOA’s federal liaison center, praised Bingaman as a strong champion on this issue, which helps thousands of small governments and entities.
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, said: “We are very grateful that Sens. Bingaman and Crapo are once again leaders of this critical effort. Dozens of small health providers and colleges have benefitted greatly from this provision, which is aimed at small borrowers and has resulted in immediate jobs and stimulus.”
William Daly, senior vice president of government relations at the Regional Bond Dealers Association, also welcomed the legislation, which he noted is one of the group’s highest policy priorities this year. He said it has been “particularly effective” by expanding bank-qualified debt to pooled financings and to nonprofits like small colleges and hospitals.
“We are glad to hear that he is going to introduce a bill and will work with him to get it passed,” Daly said.
Meanwhile, Dorn also discussed the success of Build America Bonds, which he said are likely to be extended on a temporary basis, similar to the way in which a small business and jobs bill that cleared the House in March would extend the program until April 2013 and gradually reduce subsidy rates to 30%.
Currently, the program provides issuers the option of receiving a direct subsidy payment from the Treasury equal to 35% of their interest costs.
Dorn noted the annual tax “extenders” bill allows lawmakers to experiment with new ideas and to accommodate pay-as-you-go budgeting requirements that are difficult to meet if the programs are made permanent.
“It’s not unlikely to expect that this might become the next extender, that Congress will say, 'Okay, we’ll do it for three more years and we’ll have a reduced rate over time,’ ” he said. “And then three years later various constituencies will come forward and say, 'Look at this great evidence, you need to continue it for three more years.’ ”