Sen. Jeff Bingaman, D-N.M., has introduced a bill that would raise the small-issuer limit for bank-qualified bonds to $30 million from $10 million — legislation that is drawing strong support from issuer and muni market groups.

Under the bill, whose co-sponsors include three Republicans, banks would be able to deduct 80% of the cost of buying and carrying the tax-exempt bonds of issuers that sell no more than $30 million of muni bonds per year.

The American Recovery and Reinvestment Act had tripled the small-issuer limit for bank-qualified bonds to $30 million in 2009 for two years, but the provision expired on Dec. 31.

The higher limit under the ARRA “was a great success and deserves to be made permanent,” Bingaman, a five-term senator and chairman of the Senate Energy and Natural Resources Committee, said in a release.

The fact that the bill has five co-sponsors on the Senate Finance Committee, including three Republicans, “demonstrates this is an issue that crosses party lines” and has support within the committee that has jurisdiction over tax issues, he said.

The Republican co-sponsors are Sens. Mike Crapo, R-Idaho, Olympia Snowe, R-Maine, and Charles Grassley, R-Iowa.

Republicans have consistently balked at any extensions of the federal stimulus law provisions. But issuer and market groups are hoping the bipartisan support for Bingaman’s bill will help them overcome their distaste for reinstating stimulus provisions.

Fourteen issuer groups and four market groups endorsed the bill. In a letter sent Tuesday to the six sponsors, they said the $10 million cap enacted in 1986 is outdated and worth about $5 million in today’s dollars. Raising the cap would provide easier access to capital for infrastructure projects, they told the lawmakers.

A similar provision is pending in the Building American Jobs Act of 2011, introduced in the House in March by the top Democrat on the Ways and Means Committee, Rep. Sander Levin of Michigan.

Bingaman’s legislation also would reinstate the ARRA provision that exempted conduit issuers from the cap. The $30 million limit would apply to individual small borrowers that access the market through a larger, state-wide issuer, rather than to the issuer.

With this provision, large conduit issuers, like the Dormitory Authority of the State of New York, one of the market’s biggest issuers, could sell bank-qualified bonds on behalf of small issuers, each of which offers no more than $30 million of municipal bonds per year.

“When the limitation only applies to the issuer, it frustrates the ability of the state issuers to offer bank-qualified debt,” said Charles Samuels, an attorney with Mintz Levin Cohen Ferris Glovsky & Popeo PC who represents the National Association of Health and Education Facilities Finance Authorities. “Each borrower gets up to $30 million bank-qualified” bonds, he said.

It is unclear what tax legislation the Bingaman bill could be attached to this year. Samuels said he is hopeful that the bipartisan support for the legislation means that lawmakers will somehow push it through Congress.

“What that [vehicle] would be and when it would be is totally speculative at this point,” he said.

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