WASHINGTON — The House is expected Thursday to take up an $857 billion tax package that contains neither an extension of the Build America Bond program nor the increased small issuer limit for bank-qualified bonds, both of which expire Dec. 31.
And while a number of House members have voiced strong opposition to the bill, which contains few bond provisions, it is expected to be approved in that chamber. The bill would extend the Bush administration tax cuts for two years and unemployment benefits for 13 months, as well as reinstate the inheritance tax for estates of $5 million or more for individuals.
The legislation was passed by a vote of 81 to 19 in the Senate Wednesday afternoon.
The Senate vote came after lawmakers rejected three motions for suspension of the rules to allow amendments, but none of the amendments dealt with bonds. An amendment to extend the BAB program for one year at a 32% subsidy rate, filed by Sen. Ron Wyden, D-Ore., was withdrawn before voting began.
The vote also followed remarks Sen. Jeff Bingaman, D-N.M., made the previous night, saying he would oppose the bill.
"I wish to note my deep disappointment with the political posturing that has led to the cancellation of nearly every innovation under the [American Resource and Recovery Act]," he said.
The BAB program "provided crucial support for municipal governments during a period of sustained challenges in rasing funds to meet infrastructure needs," he said, adding, the $30 million small issuer limit for bank-qualified bonds "significantly reduced rural governments' borrowing costs while creating jobs and infrastructure improvements for thousands of communities."
The legislation was introduced Thursday night by Senate Majority Leader Harry Reid, D-Nev., after Republicans, the Obama administration, and some Democrats agreed to it.
But the measure would not extend other muni bond-related tax incentives such as the alternative minimum tax exemption for private-activity bonds, recovery zone bonds, or the authority for federal home loan banks to issue letters of credit for tax-exempt debt.
The Senate-passed bill would extend qualified zone academy bonds through 2011 and authorize $400 million more for them, but only as tax-credit bonds without any direct-pay option similar to BABs. It would not prevent muni issuers from continuing to sell qualified school construction bonds, qualified energy conservation bonds, and clean renewable energy bonds already allocated with the direct-pay option, even after 2010.
QSCB issuers get payments from the federal government equal to the lesser of the bonds' actual interest rate or the tax credit rate. QECB and CREB issuers get payments equal to 70% of their interest cost.
The bill also contains extensions for two expiring school bond provisions. One would increase the exemption from arbitrage rebate requirements to $15 million from $10 million for issuers who issue $15 million or less of bonds in a year and use $10 million of them to finance public school construction expenditures.
The other provision would allow tax-exempt private-activity bonds to be issued in states in amounts up to $10 per capita for elementary and secondary public school facilities owned by private, for-profit corporations but operated by public educational agencies under public-private partnership agreements that meet certain criteria.
The authority to issue New York Liberty Zone bonds and Gulf Opportunity Zone bonds would be extended through 2011, along with certain tax incentives associated with them. The ability to deduct state and local sales taxes in lieu of state and local income taxes also would be extended through 2011.
