Lawmakers Urged to Solidify ARRA Bond Provisions

WASHINGTON - Many of the two-year municipal bond initiatives in the new stimulus law, including the Build America Bonds direct payment option, should be expanded and extended or made permanent, municipal market participants told members of a House Ways and Means Committee panel this morning.

“I am hopeful that Congress will look at all of the bond provisions included in the [American Recovery and Reinvestment Act of 2009] and make them permanent so that state and local governments can continue to benefit from these [them] after they are scheduled to expire next year,” Patrick McCoy, finance director for the New York State Metropolitan Transportation Authority, told members of the select revenue measures panel at a hearing on the tax-exempt and taxable bond market.

“I think it is necessary to extend many of these programs in order for Congress to get a sense of the benefits they can provide,” said Gary Bornholdt, a partner at Nixon Peabody LLP and former legislative counsel to the Joint Tax Committee, who also testified before panel.

Bornholdt said “there are sound policy reasons for making [some ARRA] provisions permanent,” such as the one that exempts tax-exempt bonds from the individual and corporate alternative minimum tax and another that eases the restrictions on bank deductible bonds.

Robert Culver, president and CEO of MassDevelopment, urged the lawmakers to make permanent the ARRA provisions that expand the use of small issue industrial development bonds. One provision temporarily expanded the definition of qualified manufacturing bonds to include facilities that help produce intangible property such as software. Another temporarily allowed the bonds to be used for property that is functionally related and subordinate to manufacturing facilities.

“Mass Development strongly supports making these enhancements permanent to bring manufacturing bonds into the 21st Century,” Culver said.

Bornholdt urged the Obama Administration and Congress to consider extending the direct cash payment option of the BABs program to taxable tax credit bond programs because there is currently no market for tax credits at this time.

BABs are taxable bonds that either allow the issuer to receive a cash payment from the federal government or to direct the federal government to provide a tax credit to investors. They are proving very popular, with virtually all BABs issuers opting for the cash payments thus far.

Bornholdt said the direct-pay option should be extended to tax credit bond programs such as clean renewable energy bonds and qualified school construction bonds, which have been deemed worthy of deeper subsidies.

Alan Krueger, the Treasury’s assistant secretary for economic policy and chief economist, acknowledged that the administration has made renewable energy a priority, but said “the revenue costs would have to be considered” of any expansions or extensions. He also said it is “premature” to say how successful these programs will be.

Pressed by committee chairman Richard Neal, D-Mass., Krueger said the Treasury “within the next few months” will issue guidance on how issuers can strip the tax credits from taxable tax credit bonds and sell them separately.

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