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BAB, Other Extensions in Limbo as Tax Bill Drags On

WASHINGTON — A two-year extension to the Build America Bonds program, as well as extensions to a handful of other bond provisions set to expire at the end of the year, remain in legislative limbo as Senate Democratic leaders this week continue attempts to produce a tax bill that they can pass.

Late Thursday, the Senate voted 56 to 40 against limiting debate on a revised legislative package extending several expiring or expired tax provisions, sending Democrats back to the drawing board. That defeat came just days after the Senate voted down the original measure approved by the House on May 28 by a vote of 215 to 204.

Republicans and conservative Democrats have opposed the package, saying its costs are not covered by revenue-raising ­offsets and it would add to the deficit.

Thus far, the bond provisions in the “extenders” package have remained untouched, but if lawmakers cannot find an agreement on the more contentious provisions, the entire package could remain stalled as BABs and other temporary provisions enacted by the American Recovery and Reinvestment Act inch towards a Jan. 1, 2011 expiration date.

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 he is “absolutely concerned” about the logjam.

“I hope that at end of day, the noncontroversial items proven to be effective will be extended,” he said.

The BAB extension would extend the program for two years, and would lower the current 35% subsidy rate to 32% for BABs sold in 2011, and 30% for BABs sold in 2012, mirroring the House version. The tax package also includes a one-year extension to the recovery zone economic development and facility bond programs, which would also be allocated another $25 billion in bond authority.

Another sought-after extension caught up in the package would extend by one year a greater small-issuer exemption for bank-qualified bonds. ARRA had allowed 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 of the previous limit of $10 million.

It also allowed for the $30 million limit to be applied to individual borrowers participating in conduit deals, rather than the conduit issuer. The new bill would extend these measures through 2011.

The bill also would extend for one year the exemption from the alternative minimum tax for all private-activity bonds, including those issued to refund debt sold after 2003. That provision is also currently set to expire at the end of the year.

In addition, New York City issuers would be able to sell Liberty Zone bonds through the end of 2010 under the new bill. Liberty bonds are a special type of private-activity bond created to help boost economic development in lower Manhattan following the Sept. 11, 2001, terrorist attacks. The authority to issue the bonds expired at the end of last year.

The bill 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.

It also 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.

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