WASHINGTON — The Senate Finance Committee yesterday approved an economic stimulus package that would increase the private-activity bond volume cap by $10 billion for one year and allow housing agencies to issue tax-exempt bonds to refinance subprime mortgage loans.
The bill, approved by a vote of 14 to 7, also included authorization for $400 million of clean renewable energy bonds to issued be next year.
If approved by the full Senate, the measure would have to be reconciled with a stimulus plan approved by the House earlier this week. However, the Senate bill is much broader than the one approved by the House and could draw opposition from President Bush and House members. There are no corresponding bond provisions in the House measure.
The committee adopted the PAB volume cap and mortgage revenue bond amendment by a vote of 20 to 1.
The proposal was offered by Sens. John Kerry, D-Mass., and Gordon Smith, R-Ore. The senators argued that their amendment addresses the heart of the economic crisis by providing relief to homeowners struggling with subprime mortgages. They had initially sought to increase the PAB cap by $15 billion, but agreed to a reduction at the behest of committee chairman Sen. Max Baucus, D-Mont.
“Uncertainty in the market is what we’re trying to address with the stimulus,” Kerry said yesterday. “If you keep people in your home, folks, you’ll do more to send a message to the marketplace.”
With the additional $10 billion of extra PAB capacity, state and local HFAs could issue bonds to help homeowners refinance their mortgages. Currently, they can only issue qualified mortgage revenue bonds to provide mortgages to first-time homebuyers. The Joint Tax Committee estimated the proposal would cost about $1.4 billion.
Under the energy bond, or CREBs, provision, governmental entities, including public power providers, and electric cooperatives, would be authorized to issue up to $400 million of CREBs after applying to the Internal Revenue Service for a bond allocation. The provision would effectively extend the current program beyond the current Dec. 31 expiration date. Created in 2005, CREBs are taxable tax-credit bonds that municipal issuers can use to finance renewable energy projects, such as projects that generate electricity using the sun or wind. Tax-credit bonds provide the holder with an income tax credit in lieu of tax-exempt interest payments.
The committee, however, rejected by a vote of 14 to 7 an amendment offered by Sen. John Kyl, R-Ariz., which would have provided relief from the alternative minimum tax in the 2008 tax year. The AMT, which applies to interest earned on private-activity bonds, as well as some governmental and 501(c)(3) bonds, is designed to target high-income households, which are eligible for so many tax breaks that they pay little or no taxes. However, the AMT is not indexed to inflation, so more taxpayers become subject to it each year.
