WASHINGTON — A slew of bond-related bills was introduced in the House and Senate in the last few days before members of Congress left town to begin their five-week recess.
The bills cover Build America Bonds, qualified small-issue manufacturing bonds, qualified zone academy bonds and new clean renewable energy bonds.
Two of the measures would make permanent the BAB program with some changes. The program, initially created under the American Recovery and Reinvestment Act of 2009, allowed state and local governments to issue taxable bonds and receive subsidies from the Treasury Department equal to 35% of their interest costs.
The BAB program was wildly popular during that period, with state and local governments issuing about $182 billion of the bonds. But issuers haven't been able to issue BABs since the end of 2010, and the subsidy payments are being reduced due to federal spending cuts known as sequestration.
One of these bills, introduced by Rep. John Conyers Jr., D-Mich., is called the Bringing Urgent Investment to Local Development (BUILD) Act (H.R. 5530) and would phase-in lower subsidy rates, except for a new kind of direct-pay bond.
For most issuers, the subsidy rate of new BABs would depend on when the bonds are issued. The rate would be 35% for BABs issued in 2014 and would drop to 32% for BABs issued in 2015. The rate would then decline by 1% for BABs issued in each subsequent year until 2019 and after when the rate for BABs issued then would stay at 28%.
Principal cities in a metropolitan area that have average unemployment or poverty rates of at least 150% of the national average, or that have lost at least 20% of its population between 2000 and 2010, would be able to issue BABs with a 35% subsidy rate called economic development extension bonds in any year. These bonds could be used for qualified economic development purposes and to refinance outstanding debt. Eligible cities would have caps on the amount of economic development extension bonds they could issue. A city's cap would have the same proportion to $1 billion as its 2010 population has to the total population of all eligible cities.
The bill would allow BABs to be current refunded and would prevent BAB issuers from receiving reduced subsidy payments made after the bill's enactment because of sequestration. It has the support of several other members of Congress who cosponsored the bill, according to a release from Conyers' office.
"The BUILD Act directly addresses the root causes of the unemployment crisis in communities where it is most severe and enables cities across the country to accelerate much-needed infrastructure projects, while spurring economic development," Conyers said in the release. "Investing in infrastructure and public works projects is a proven, cost-effective, market-oriented approach to empowering communities."
Separately, Sen. Mark Pryor, D-Ark., introduced a bill that would permanently revive the BAB program with a 28% subsidy rate.
The bill, the Made in the U.S.A. Act (S. 2682), also would allow BABs to be current refunded and to be used to finance levees and flood control projects. Additionally, the bill would allow 501(c)(3) bonds to be BABs and would apply federal wage requirements for the projects financed with the new BABs. But the bill would not end sequestration cuts to BAB subsidy payments.
The legislation also would require federal agencies to use American-made iron, steel, wood products, cement and manufactured goods in public construction projects unless the head of an agency could justify a waiver. The bill is part of a three-bill American-Made Strong legislative package that Pyror recently unveiled. Pryor seeking to be re-elected to the Senate in November, and his election is one of the most competitive races this year.
Conyers' bill is similar to bills issued by Sen. Ed Markey and Rep. Richard Neal, both Massachusetts Democrats. Those bills would revive the BAB program at lower subsidy rates, with bonds issued in 2017 and later having a 28% subsidy rate. The BAB portion of Pryor's bill is based on legislation that Rep. Gerry Connolly, D-Va., introduced in Feb. 2013.
IDBs
Reps. Randy Hutlgren, R-Ill., and Neal introduced a bill in the House that would increase the amount of qualified small-issue manufacturing bonds that could be issued and that would expand the types of projects that could be financed with the bonds.
The bill, the Modernizing American Manufacturing Bonds Act (H.R. 5319), is supported by the Council of Development Finance Agencies and the Illinois Manufacturers' Association, according to news releases.
Manufacturing bonds, also known as industrial development bonds, are a type of private-activity bond whose proceeds can be used to finance manufacturing facilities for small- and mid-sized manufacturers.
States reported that $355.8 million of IDBs were issued in 2013, which was higher than the $240.4 million issued in 2012 but far less than the nearly $1 billion issued in 2009, according to a recent CDFA report.
The bill would make four reforms to ease restrictions on IDBs.
First, it would broaden the definition of manufacturing facility. Currently, manufacturing facilities are defined as those that produce tangible property. The bill would allow IDBs to be used to also finance facilities that produce intangible property, such as those that produce software and intellectual property.
The bill also would allow IDBs to be used to finance facilities that are functionally related and subordinate to the production of tangible or intangible property. These types of facilities would include warehouses that temporarily store materials and laboratories that test raw materials.
The measure would increase the maximum size of an IDB issue to $30 million from $10 million. The $10 million limit has the spending power of less than one-third of what it had when it was established in 1979, and it has discouraged manufacturers from using IDBs or caused them to significantly reduce the size of their projects, CDFA officials said.
Finally, the bill would increase the capital expenditure limitation for IDBs. Currently, a manufacturer can only issue IDBs if their capital expenditures, including the bond proceeds, are not more than $20 million in the six-year period beginning three years before the date of the proposed new issue and ending three years after that date. Under the bill, that capital expenditure limitation would increase to $40 million.
The first two of these changes, which would expand the types of projects that IDBs could finance, were in effect in 2009 and 2010 under the American Recovery and Reinvestment Act but expired at the end of 2010.
"The introduction of the Modernizing American Manufacturing Bonds Act represents a bold and courageous commitment by Congressmen Hultgren and Congressman Neal to support American manufacturing." Toby Rittner, CDFA president and chief executive officer, said in a release.
QZABs and New CREBs
Rep. Ron Kind, D-Wis., introduced a bill that would extend the qualified zone academy bond program by providing $400 million of volume per year for each of 2014 and 2015. The bonds would have to be issued as traditional tax-credit bonds, in which bondholders get tax credits in lieu of tax-exempt interest.
For bonds to be QZABs, all of the bond proceeds must be used to finance renovations, equipment purchases, course material development and teacher training for schools in a "qualified zone academy." A qualified zone academy is a public school that meets several requirements, including that it provides education and training below the college level and reasonably expects at least 35% of its students will be eligible for free or reduced-cost lunches. States can carry forward unused QZAB limitations for two years.
Historically for QZABs, private entities have had to contribute property or services equal to at least 10% of the bond proceeds. But the bill would reduce that amount to 5%.
The provisions in Kind's bill, H.R. 5347, were also included in a tax extenders bill that passed the Senate Finance Committee but has stalled in the full Senate.
Sen. Chuck Schumer, D-N.Y., introduced legislation that would allow New CREBs to finance qualified biogas property, which "uses anaerobic digesters or other biological, chemical, thermal, or mechanical processes (alone or in combination) to convert biomass ... into a gas which consists of not less than 52% methane, and ... captures such gas for use as a fuel," according to the bill.
The legislation is called the Biogas Investment Tax Credit Act of 2014 (S. 2739).
New CREBs could have been issued as tax-credit or direct-pay bonds since 2010. The IRS allocated $2.4 billion of the bonds in 2009, but the authority to use the allocations expired. Reallocating the unused new CREB volume has been an item on the IRS and Treasury's guidance plan.
