WASHINGTON — Most states are likely to have more new capacity to issue private-activity bonds in 2015 than they did this year, after the Internal Revenue Service raised the minimum state volume and maintained this year's per capita rate.
The updated formula for state PAB volume caps was included in Revenue Procedure 2014-61, released Thursday, which contains inflation adjustments for more than 40 tax provisions.
Private-activity bonds are issued by public entities to provide low-cost financing for the projects of nonprofit organizations or companies that serve a public purpose. Most types of PABs - including certain types of exempt-facility bonds, mortgage-revenue bonds, industrial development bonds, student-loan bonds and first-time farmer bonds - are subject to state volume caps. States receive annual PAB volume caps and also can carry over any unused cap for up to three years.
State volume caps for 2015 will be the greater of $100 per capita and $301.52 million, the IRS said. For 2014, the per capita rate was the same, and the minimum amount was $296.83 million.
The amount of states' volume caps will be determined when the U.S. Census Bureau releases new state population figures later this year. States use the minimum cap rather than the per capita amount when they have small populations, so sparsely populated states will definitely have greater new capacity to issue PABs in 2015 than they did in 2014. More populous states will have larger new PAB volume caps if their populations have increased.
The IRS document also included higher numbers that pertain to several other bond-related tax provisions.
PABs can be issued to finance loans for first-time farmers, and the maximum amount of a loan that can be financed by these bonds will be $517,700 in 2015, up from $509,600 this year, the IRS said.
When an issuer has to rebate arbitrage to the federal government, it can reduce the rebate amount by taking an annual credit for costs of computing the rebate. In bond years ending in 2015, the credit will be $1,650, up from the $1,620 for bond years ending in 2014, the IRS said.
Additionally, the IRS updated the numbers in its safe harbor rules for broker's commissions on guaranteed investment contracts or investments for yield restricted defeasance escrows.
If an issuer wants to use bond proceeds to purchase investments like GICs or escrow securities, it will hire a broker to solicit bids for the investments. The safe harbor rules put forth the costs of the broker's commission that are reasonable for an issuer to include, or treat as qualified administrative costs, when calculating the yield on the investments.
In 2015, a broker's commission or similar fee for the purchase of a single GIC or investments for a yield-restricted defeasance escrow with the proceeds of a bond issue is reasonable if the amount of the fee the issuer treats as a qualified administrative cost is no more than $39,000 or 0.2% of the amount of the value of the investment, whichever is less. At a minimum, the issuer can pay a broker $4,000 and count that as a qualified administrative cost, the IRS said.
In addition, the broker's fee is reasonable if the issuer does not treat more than $110,000 of fees as qualified administrative costs for all GICs and investments for yield-restricted escrows purchased with gross proceeds of a single issue, the IRS said.
The $39,000 maximum compares with a $38,000 limit in 2014, while the $110,000 maximum for all GICs and escrow investments purchased with proceeds of an issue will rise from $108,000 this year.
