IRS data shows 2017 rush to close PABs deals

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Authoritative data released Friday by the Internal Revenue Service shows just how much issuers rushed to close private activity bond deals in 2017 before tax law changes could take effect.

PAB issuance rose by $15.4 billion, a 12.1% increase, to $142.56 billion in 2017 from $127.15 billion the year before, according to the new tables released by the IRS for the issuance of tax-exempt bonds in 2017.

PABs represented 25.4% of all tax-exempt bonds issued in 2017, up from 21.5% in 2016.

“You can easily ramp up the 501(c)(3) bond issue very quickly,” said Johnny Hutchinson of Squire Patton Boggs. “You don’t have to get a volume cap allocation, for example.”

The IRS data shows that PABs represented from 19% to 21% of all issuances between 2012 and 2015. Also over those four years, annual issuance ranged from a low of $81.4 billion in 2013 to a high of $103.95 billion in 2012.

Overall tax-exempt bond issuance totaled $417.47 billion in 2017, down from $461.78 billion in 2016 but an increase from the $405.1 billion in 2016.

The number of issuances in 2017 totaled 22,468, down from 25,018 in 2016 and 24,046 in 2015.

The original federal tax reform bill passed by House Republicans in November 2017 would have terminated new issuances of PABs effective January 2018.

The final conference agreement between the House and Senate, however, preserved PABs while terminating advance refunding.

The majority of the PAB issuances late in 2017 likely involved 501c3 nonprofits, according to Johnny Hutchinson, a partner at Squire Patton Boggs in Houston and chairman of the tax law committee of the National Association of Bond Lawyers.

“You can easily ramp up the 501(c)(3) bond issue very quickly,” Hutchinson said. “You don’t have to get a volume cap allocation for example.”

Hutchinson added, “It would be interesting to see if the data was divided by month, but they don’t slice the bologna that way. November and December of that year would be very interesting to look at in isolation.”

More recently, PABs issuance has faced a rocky road in 2020 because of the economic effects of the COVID-19 pandemic.

“I, in particular, do a lot of airport work and that’s pretty much completely dried up at this point because the airlines usually are a good part of those deals,” said Hutchinson. He described three pending major airport deals as currently “in hibernation.”

The 501c3 PAB issuances involving colleges and hospitals have also have been delayed in many cases.

The one bright spot for PABs is multifamily housing bonds.

“We’re hoping that multifamily is going to have a good year,” said David Walton, a shareholder and tax attorney at Jones Hall in San Francisco. “In our firm, we are currently working on quite a few deals, but a lot of the deals aren’t closing yet.”

Walton said a lot of housing developers remain cautious as the economy comes out of a shutdown mode and uncertain about the value of the federal Low Income Housing Tax Credit which is used as equity for financing a deal. The tax credit is sold as a commodity as part of the financing.

NABL has requested that Congress temporarily lift the state volume caps for multifamily housing as part of any economic stimulus legislation.

State volume caps for the issuance of PABs have been a problem for California, New York, and Massachusetts, according to the Council of Development Finance Agencies.

California and New York have both been using much of their multifamily housing PAB volume cap for mixed-income multifamily apartment towers where at least 20% are for households with 50% or less of area median income.

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Private activity bonds IRS Tax-exempt bonds Tax reform Washington DC