WASHINGTON — A coalition of public finance groups is lobbying hard for House and Senate conferees working on a long-term highway bill to include a provision that would temporarily increase the limit for bank-qualified bonds.
Eighteen groups, including the Government Finance Officers Association and Securities Industry and Financial Markets Association, sent a letter to Senate Environment and Public Works chairwoman Barbara Boxer, D-Calif., and House Transportation Committee chairman John Mica, R-Fla., urging them to include the bank-qualified provision from Boxer’s Senate measure in whatever final bill the committee produces.
The two play leading roles in the 47-member conference committee, which includes 33 House members and 14 senators and started work on the final bill Tuesday.
The bank-qualified bond provision, included in the Senate-approved two-year, $109 billion bill, would allow banks to deduct 80% of the cost of buying and carrying tax-exempt bonds sold by issuers whose annual issuance is $30 million or less from June 30, 2012, to July 1, 2013. That would be a significant increase from the current $10 million limit, which has been in place since 1986.
The letter’s signatories contend that the failure to even index that limit to inflation has dramatically reduced the ability of small issuers to gain market access. Michael Decker, managing director of muni securities at SIFMA, said the temporary increase of the limit under the American Recovery and Reinvestment Act during 2009 and 2010 made a big difference for those smaller issuers.
The letter did not stress the connection to the ARRA, however, pointing instead to a precedent more appealing to Republicans, who account for 26 of the 47 conferees. “This section [of the Senate highway bill] is critical to communities across the United States and it mirrors the intent of bipartisan legislation introduced by Senators Bingaman and Crapo last year, S. 1016, the Municipal Bond Market Support Act of 2011,” the groups wrote.
Chuck Samuels, a member at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC, said the market groups lobbying Congress have made the bank-qualified provision “a top priority,” although they also support other muni measures such as alternative-minimum tax relief for private-activity bonds and elimination of the PAB volume cap for water and sewer bonds.
The bank-qualified cap increase doesn’t come free. The Joint Committee on Taxation estimated that it would cost $761 million in lost tax revenues over 10 years if enacted.
Another proposal included in the Senate bill has market support, but isn’t generating the same kind of enthusiasm. Inserted by Sen. Ron Wyden, D-Ore., the measure would authorize state infrastructure banks to issue tax-credit transportation and regional infrastructure project, or TRIP, bonds. Wyden and Sen. John Hoeven, R-N.D., who have a five-year TRIPs bill pending, proposed in February to authorize the state banks to issue up to $500 million per state of TRIP bonds over the life of the transportation bill. The Senate bill contains only a shell provision of their proposal, not authorizing the TRIPs in any specific amounts.
Bill Daly, director of government affairs at the National Association of Bond Lawyers, said the future of the TRIPS is especially up in the air because of that.
“Even the committee describes that as a placeholder,” Daly said.
Decker said SIFMA’s members support the idea, but noted that tax-credit bonds don’t generate much excitement because such deals are so difficult to do. “Getting a bill is the most important thing,” he said. With a bill in place, Decker added, stability would return to muni issuers and the pressure on federally-backed bonds such as grant anticipation revenue vehicles, or Garvees, would “resolve itself.”