Treasury's Tsilas: Don't Ignore Muni Curbs in Camp's Plan

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BOSTON — A Treasury Department official told bond lawyers to view the municipal bond provisions in House Ways and Means Committee Chairman Dave Camp's tax reform plan as a "scorecard of revenue offsets" that can be used in other tax proposals.

"While some have indicated in the press that this is likely to go nowhere, I could encourage you to look at some of the provisions," Treasury associate tax legislative counsel Vicky Tsilas said at the National Association of Bond Lawyers' Tax and Securities Law Institute here.

The bond proposals in Camp's plan include capping the value of the exemption for municipal bonds at 25%, and eliminating the tax exemption for qualified private activity bonds and advance refunding bonds issued after 2014.

The Michigan Republican said earlier this week that he wants to hold hearings on specific parts of his draft legislation.

Perry Israel, an attorney with his own practice in Sacramento, Calif., agreed with Tsilas that bond lawyers should be concerned about Camp's plan.

"What you're seeing here are markers that could very well be something that we're going to be talking about in the future," Israel said. He noted that there were many tax reform proposals in the early 1980s that people initially viewed as dead-on-arrival but were debated as tax reform legislation was being passed in 1986.

Israel also said that Camp's plan shouldn't be ignored because that the Joint Committee on Taxation views the muni exemption as a large tax expenditure. As a result, curbing the muni exemption will consistently come up as a way to pay for other aspects of tax reform.

"Keep your eyes open," he said.

Tsilas noted that the bond aspects of Camp's plan and President Obama's fiscal 2015 budget have similarities and differences. The president's budget has a 28% cap on the value of the muni exemption that's similar to the cap in Camp's plan. But in contrast to Camp's proposal on PABs, Obama would loosen PAB restrictions.

Most of the bond proposals in the president's fiscal 2015 budget were the same as proposals in Obama's budget for the previous year, Tsilas said. The two main differences are with the proposal for America Fast Forward bonds, which are direct-pay bonds where the issuer would receive a subsidy equal to 28% of interest costs. Unlike the president's fiscal 2014 budget, the fiscal 2015 budget recommends barring subsidy payments to issuers of AFF bonds from being reduced under sequestration.

Also Obama's budget for next year would not provide a temporary 50% subsidy rate for AFF bonds for school construction, she said.

Some of the president's bond proposals have become the basis for legislation introduced in Congress, Tsilas said. These proposals include increasing the national limitation amount for qualified highway or surface freight transfer facility bonds and eliminating the volume cap for PABs for water infrastructure.

Tsilas also told the bond lawyers that Sen. Ron Wyden, the new chairman of the Senate Finance Committee, is "no stranger" to making bond proposals "so stay tuned."

Wyden, a Democrat from Oregon, has previously introduced tax-reform bills that would halt the issuance of tax-exempt bonds in favor of traditional tax-credit bonds that provide investors with tax credits equaling 25% of the interest costs. More recently, he introduced a bill that would create tax-credit bonds to finance infrastructure, she said.

"Wyden has shown big interest in tax reform over the years," Tsilas said.

This year, the discussion on tax-reform in Congress has "tapered a little bit" because of the midterm elections in November. More immediate attention is focused on renewing "tax extenders," or provisions that expired at the end of last year such as one on qualified academy zone bonds, Tsilas said.

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