In 2005’s low interest rate environment, long-term refunding issues exceeded new-money issues for the first time over a decade, according to statistics released by the Internal Revenue Service last week. Tax-exempt bond issuance hit a record $364.5 billion in 2005, 10.3% higher than the $330.4 billion issued in 2004, the IRS reported in its fall 2007 Statistics of Income Bulletin, published late Friday. Taking advantage of interest rates at historic lows that year, state and local governments issued more refunding long-term bonds than new-money long-term bonds for the first time since 1993, the IRS said. Of the $311.3 billion of long-term governmental bonds issued, refunding issues made up 51.3%, while new money issues comprised 48.7%.Nearly all of the tax-exempt bonds sold in 2005 were long term, with maturities of 13 months or more, and used to fund construction or other capital improvement projects. About 15% of total issuance was short-term debt, such as tax, revenue, and bond anticipation notes, the IRS said.New-money issuance of governmental bonds, which typically fund essential operations, facilities, and services for general public use, fell 6% in 2005, to $195.6 billion from $208.2 billion. Refunding issues shot up 38.2%, to $168.9 billion from $122.2 billion. More than half of the long-term governmental bonds issued in 2005 went to education, transportation, and utilities projects, the IRS said.Meanwhile, private-activity bond issuance totaled $110.3 billion in 2005, 17.4% higher than the $94 billion issued the year before. Private-activity bonds are issued by state and local governments, who then lend the proceeds to private entities. Issuance was split more evenly in that category, with $54.7 billion going toward new-money issues and $54.8 billion to refundings.Debt issued for qualified mortgages and residential rental projects accounted for 27.5% of private-activity bond issuance. Qualified 501(c)(3) bonds, a category of bonds that are issued to benefit hospitals and other nonprofit organizations, made up 48.2% of long-term private-activity bond issuance in 2005, the IRS said.In its state-by-state breakdown, the IRS reported that Nebraska’s governmental bond issuance tripled in 2005, to $1.5 billion from $500 million, and Mississippi’s issuance rose 138%, to $1.6 billion from $700 million. California’s issuance fell to $19.2 billion in 2005 from $33.5 billion in 2004, a drop of 42.8%. Governmental bond issuance also fell significantly in Georgia and Michigan. States recording notable increases in new-money private-activity bond issuance included the District of Columbia, where issuance was up 178%, from $400 million to $1 billion, and Michigan, where issuance doubled from $1.1 billion to $2.3 billion.The quarterly Statistics of Income Bulletin Bulletin outlines data collected from state and local government information returns, as well as individual income tax returns, corporate tax returns, and filings from tax-exempt charitable organizations. The fall 2007 bulletin used data collected from IRS Form 8038, the annual information return filed by tax-exempt bond issuers. It included returns processed from Jan. 1, 2005, to April 22, 2007, for bonds issued in 2005. The data excludes returns filed for commercial paper transactions and pooled bond financings.

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