Draft Bill Inadvertently Opens Door for Coops, Governments

WASHINGTON — A bond provision in a recently unveiled climate change bill appears to be broader than intended and would allow electric cooperatives and potentially the federal government to serve as conduit borrowers on tax-exempt and Build America Bond deals.

The draft American Power Act, released Wednesday by Sens. John Kerry, D-Mass., and Joseph Lieberman, I-Conn., contains a provision designed to allow tax-exempt bonds to be used in public-private partnerships for advanced nuclear facilities, according to a summary of the bill.

However, bond lawyers said yesterday that, as written, the provision is not limited to nuclear power facilities and instead could be applied to any tax-exempt or BAB financings.

Currently, electric coops and the ­federal government are considered private ­business users for tax purposes for bond-financed facilities and are restricted from any significant participation in ­borrowings or use of the facilities. 

Private-activity bonds are not tax-exempt if more than 10% of proceeds are for private use and more than 10% of the payments are provided by private parties unless the bonds are used to finance certain qualified facilities.

However, the provision says that any federal, state, or local government entity or subdivision, as well as electric coops, would be considered a “qualified public entity” that would not be limited by the private-business use restrictions.

A Lieberman aide said the provision was intended to incentivize municipal and cooperative power companies to invest in nuclear projects and that it will be “refined” going forward.

The bill also would authorize $3 billion of tax-credit bonds for natural-gas powered vehicles, expand the nuclear loan guarantee ­program, and provide $2 billion of ­competitive grants for transportation projects.

Meanwhile, 13 municipal groups threw their support behind a separate bill introduced Wednesday that would make ­permanent the $30 million smaller issuer limit for bank-qualified bonds. The Municipal Bond Market Support Act, introduced by Sens. Jeff Bingaman, D-N.M., and Mike Crapo, R-Idaho, also would peg that limit to inflation, and apply at the borrower level in conduit deals.

The muni groups, including the ­Government Finance Officers Association and the National League of Cities, told senators in a two-page letter this week that bank-qualified bonds are a “critical vehicle” for local governments. They said the higher limit has allowed “thousands of cities, schools, hospitals, and health care facilities to ­access lower-cost debt in ­order to provide essential infrastructure and services.”

A Bingaman spokesperson said yesterday that the senators want the provision to be included in whatever legislation contains an extension of the BAB program.

House and Senate tax-writers reportedly are working to put together a ­comprehensive tax package that would ­extend a number of expiring tax breaks and include a BAB extension. The legislation could be introduced as soon as next week. However, tax committee sources have been unable to provide specifics.

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