Congress should equalize the technical rules governing existing tax-credit bond programs, as well as any others it creates in the future, an industry group argued last week.
The National Association of Bond Lawyers made the argument in a white paper it released last Friday that aims to prevent differences in tax-credit bond programs from being incorporated into the federal tax code.
Particularly timely because lawmakers are weighing proposals for similar programs, the paper, published on NABL's Web site, was "compiled as a guide for our members; to identify what the issues are," Sean Gard, NABL's deputy director of governmental affairs, said yesterday. "It's more of an informative piece."
The white paper identifies several areas where technical rules interfere with issuers' ability to benefit from the taxable bonds, which provide holders an income tax credit in lieu of tax-exempt interest payments, and "diminish the subsidy Congress intends to provide."
One example is a decline in the issuance of qualified zone academy bonds since Congress subjected them to arbitrage restrictions in 2006, according to NABL.
"Bond counsel in different regions of the country have noted a markedly decreased interest in the issuance of QZABs with the new restrictions," the association said. "While the long-term effect of the restrictions remains unclear, this market disruption illustrates the potential effects of changes in the level of subsidy provided and the imposition of complex new restrictions."
Created in 1996, QZABs were the first tax-credit bonds. In each year since, Congress has authorized up to $400 million of the bonds for renovations and repairs of existing school facilities.
Two years ago, Congress created a second category - clean renewable energy bonds, or CREBs. Under recent legislation, up to $800 million of the bonds can be issued each year for renewable energy projects.
Treasury Department and Internal Revenue Service officials have strongly opposed the creation of new categories of tax-credit bonds after struggling to enact supporting regulations for QZABs and CREBs. Nevertheless, several new categories have been proposed in recent legislation, and nearly all of them have had different statutory provisions than those that apply to QZABs and CREBs.
The House Ways and Means Committee, for instance, is weighing legislation that would create tax-credit bonds for new school construction, as well as proposals to expand the CREB program to include energy conservation projects.
"Regardless of the scope of tax-credit bond programs that Congress authorizes or the level of subsidy it ultimately decides is appropriate for these programs, application of several general tax policy principles would seem appropriate," NABL said.
Those principles include providing uniform rules for all the programs, providing applicable rules that are as administratively as simple as possible, and authorizing bond issuance for periods of sufficient length to facilitate the development of markets for the bonds, NABL argued.
The association pointed out in its comments that only CREBs are subject to the ratable principal amortization requirement, which interferes with standard techniques for structuring longer-term debt and substantively requires the issuance of serial-maturity bonds.
Other examples of unnecessary complexity, it said, are the restrictions on who can own the bonds - the tax credits on QZABs may be claimed only by banks and financial institutions, whereas CREBs may be owned by any taxpayer. QZABs must be issued by or on behalf of state or local governments, while CREBs can be issued by any "qualified issuer," including certain cooperative lenders and electric companies.
