The Treasury Department should focus this spring on issuing allocation and accounting regulations, as well as guidance on advance refundings hedged by London Interbank Offered Rate swaps and the naming rights of bond-financed facilities, bond attorneys urged yesterday.
Responding to a request from Internal Revenue Service chief counsel Donald L. Korb and Treasury Department attorney John J. Cross 3d, the National Association of Bond Lawyers recommended Treasury issue guidance on several tax-exempt finance topics for which existing guidance is out of date.
At the top of NABL's list was a set of long-overdue allocation and accounting regulations, which has been on Treasury's to do list for several years. Those rules will govern the use of private-activity bond proceeds and will likely define how municipal bonds can be used to finance "mixed-use" facilities -- those with governmental and private business use.
Treasury tax policy spokesman Sean Kevelighan said late last year that the department was making progress on the proposed regulations but did not expect to issue them soon. He was not available for comment yesterday.
Bond lawyers have said the lack of guidance represents a significant gap in the current regulatory structure that could be filled to give issuers more confidence and direction when entering into public-private partnerships.
Also on NABL's list of prioritized guidance items was the simplification of arbitrage restrictions, bond yield calculations, and identification requirements for variable-rate advance refunding issues hedged by LIBOR swaps, as well as the revision of two revenue procedures for private-activity bonds -- one that governs federally sponsored research agreements and another management contracts.
Those revenue procedures "are dated now," according to NABL president-elect Carol L. Lew, a partner with Stradling, Yocca, Carlson & Roth in Newport Beach, Calif.
"The world has evolved and there are new arrangements ... that were not even contemplated or considered at time they were adopted," she said. "In both of those areas, we felt that it was time for a comment project."
NABL suggested Treasury add post-issuance compliance guidance to public hearing and approval requirements for tax-exempt bonds for instances in which the nature of a project changes after bonds are issued. The department should also clarify the scope of the "insubstantial deviation" exception from those requirements, according to the group.
NABL also recommended Treasury provide guidance on the treatment of the sale of naming rights associated with a bond-financed facility.
"The practical reality is that bond counsel has to deal with questions all the time relating to naming rights and [similar] arrangements," said Lew, who coordinated the association's effort to prioritize its recommendations. "Presently, there is no published guidance, only a private-letter ruling. We felt it would be useful to have some form of published guidance telling us how to address these questions."
The association also suggested Treasury examine the relationship between the refunding regulations it issued in late 2005, which govern measurements of private activity in the use of tax-exempt bond proceeds, and related, pre-existing rules to ensure that they "work well together for common structures that have been historically used," Lew said.
Also included in NABL's communication with Treasury yesterday was a list of miscellaneous "clean-up and simplifying" amendments to department regulations, such as expanding the scope of single-investment treatment rules to cover equity-funded defeasance escrows, clarifying the treatment of grants from bond proceeds as capital or working capital expenditures, and clarifying whether payments of principal and interest on purpose investments are sale proceeds or investment proceeds. (c) 2006 The Bond Buyer and SourceMedia, Inc. All rights reserved. http://www.bondbuyer.com http://www.sourcemedia.com
