WASHINGTON - President Obama's fiscal 2016 budget includes several smaller bond proposals that were also in the budget he released last year.
The Treasury Department detailed these in its Green book, which provides an explanation of all revenue proposals.
The budget would authorize current refundings of Build America Bonds and other tax-credit bond programs that currently do not allow or explicitly have tax-law provisions that address their current refundings. The current refundings could be done if certain conditions were met: the issue price of the current refunding bonds could not be greater than the outstanding principal amount and the weighted average maturity of the current refunding bonds could be no longer than the weighted average maturity of the bonds being refunded.
The budget would repeal the $150 million limit on the volume of outstanding non-hospital tax-exempt bonds that can be used for the benefit of a 501(c)(3) nonprofit entity. The limit currently applies to 501(c)(3) bonds for which more than 5% of the proceeds finance or refinance working capital expenditures or capital expenditures incurred on or before Aug. 5, 1997.
The budget would also provide that research arrangements do not give rise to private-business use in bond-financed research facilities as long as: a state or local government or a nonprofit owns the facilities; and the government or nonprofit is permitted to enter into a bona fide arm's length contract with a private business sponsor of research for sharing the economic benefits of products resulting from the research.
Obama would also repeal the 5% unrelated or disproportionate private business use test to simplify the private business limits on governmental bonds. Under current law, for governmental bonds, no more than 10% of the proceeds can be used for private business use and no more than 10% of the debt service can be paid for or secured by private business use. The 10% private business use test is reduced to 5% if the private use is unrelated or disproportionate to the governmental use of a project.
Obama is again proposing to modify the tax-exempt bond rules for Indian tribal governments. He is proposing to repeal the "essential governmental function" standard for these bonds so they are on a par with general governmental bonds. Also, Obama is proposing to allow Indian tribal governments to issue tax-exempt private-activity bonds for the same types of projects as are allowed for state and local governments. The PABs would be issued under a modified national volume cap to be administered by the Treasury.
For housing, Obama proposed that PAB volume cap could be converted into low income housing tax credits. The president would also repeal the purchase price and refinancing limitations on single-family mortgage revenue bonds. Under current law these bonds can generally only be used when a mortgagor's income is not more than 115% of applicable median family income. Also, the bonds can generally only be used for refinancing new mortgages for first-time homebuyers.
The budget would simplify the arbitrage restrictions on investments of tax-exempt bond proceeds. The proposal would rely on arbitrage rebate requirements as the main type of restrictions and generally would repeal yield-restriction requirements. It would also "provide a broader streamlined three-year spending exception to arbitrage rebate for tax-exempt bonds" that meet certain requirements.
In addition, the budget would increase the small-issuer exception to the arbitrage rebate requirements to $10 million from $5 million and index the limit to inflation, Treasury said.
