President Bush yesterday signed into law the $70 billion tax reconciliation bill that restricts pooled bond issuance, requires broker-dealers to report tax-exempt interest, and moves up the effective date of an elevated limit for capital spending associated with industrial development bonds.
Municipal market groups have alternately applauded and decried the tax package, which had been delayed for months as Congress wrangled over extensions of alternative minimum tax relief and lowered tax rates for capital gains and dividend income. The Senate passed the bill by a 54-44 vote last Thursday after the House cleared it by a 244-185 vote the day before.
A secondary “trailer” bill of tax cut extensions, which could include a two-year extension of the qualified zone academy bond program, has been moved into the pension reform bill, the details of which are being worked out this month by a conference committee. Lawmakers have said they hope to finalize the legislation before they leave for the Memorial Day recess.
The legislation signed yesterday includes provisions that require tax-exempt pooled bond issuers to reasonably expect to spend 30% of bond proceeds within a year and to have written loan agreements for at least 30% of proceeds at the time of issuance.
It requires issuers to redeem outstanding bonds with unspent proceeds at the end of loan periods and to count pooled bonds when determining whether they qualify for the small-issuer exception to federal arbitrage rebate rules.
The law also includes a requirement that broker-dealer firms report to the Internal Revenue Service all tax-exempt bond interest paid to bondholders, and a speed-up of an increase in the capital expenditure limit for IDBs. On Dec. 31 of this year, the limit will increase from $10 million to $20 million, while the issuance limit will remain at $10 million.
In addition, it expands eligibility for states’ veterans mortgage bond programs.
