WASHINGTON — President Obama's fiscal 2015 budget proposes making the rules for tax-exempt bonds issued by Indian tribal governments more similar to those for bonds issued by state and local governments.
"Essentially, the proposal starts by looking at rules that work in the state and local bond area, and trying to see whether those make sense in the area of tribal bonds," assistant treasury secretary for tax policy Mark Mazur said, after speaking to the National Congress of American Indians' executive council's winter meeting here on Tuesday.
Historically, Indian tribal governments have been required to use tax-exempt bonds only to finance "essential government function" activities that are "customarily" performed by state and local governments with general taxing powers.
But that standard "focuses on appropriate governmental activities (rather than the actual beneficiaries) and has proven to be a difficult standard to define and to administer," Treasury officials said in the green book explanation of the fiscal 2015 budget's revenue proposals.
Obama is proposing to repeal the "essential governmental function" standard for tribal governments and to instead allow them to issue governmental bonds that would be subject to the same standards that apply to state and local governments, with the exception of two key restrictions. Tribal governments could use bonds to finance projects on reservations. But Obama would add more flexibility allowing them to also finance projects that both: are near or have a substantial connection to the reservation or that provide goods or services to reservation residents. Additionally, the bonds could not be used for certain gaming projects.
Additionally, the budget proposes giving tribal governments the ability to issue private-activity bonds for the same types of projects as state and local governments, with the same restrictions,. There would be a national PAB volume cap for all Indian tribal governments as a group that would be determined in the same as state volume PAB caps. For 2014, the cap would be the greater of $100 per capita or $296.83 million.
Currently, tribal governments generally cannot issue tax-exempt private-activity bonds except for when they are financing manufacturing facilities and then some restrictions apply.
Obama's proposal is similar to the TED bonds that were created in 2009 under the American Recovery and Reinvestment Act, which provided $2 billion in bonding authority for them. Tribal governments can issue TED bonds to finance anything that state and local governments can finance with tax-exempt bonds, as long as the project is on an Indian reservation and is not used for gambling.
"There still is a large amount of unused volume cap here, approximately $1.3 billion of the original $2 billion, so these resources that are set aside can be tapped," Mazur said. "We think these are valuable tools for economic development and something we would urge tribes to take a hard look at and see if whether it fits their needs."
ARRA directed the Treasury Department to study the TED bond provision.
Obama's proposal in the fiscal 2015 budget is a repeat of one he made for fiscal 2014 and stems from Treasury's recommendations made in a 2011 report.
