Sewell files bank qualified bond bill

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Rep. Terri Sewell has delivered on her promise to file bipartisan legislation that would increase to $30 million from the current $10 million the amount of tax-exempt bonds that individual local governments or nonprofits can issue and still qualify to sell debt to banks under favorable terms as bank-qualified.

Sewell, an Alabama Democrat, and Rep. Tom Reed, R-N.Y., introduced the Municipal Bond Market Support Act of 2019, H.R. 3967, late Thursday as the House was finishing its last votes prior to a six-week August recess.

“Expanding the availability of bank-qualified bonds will help local governments and nonprofits afford critical construction projects and stimulate their economies, all while providing significant savings for Alabama taxpayers,” Sewell said in a press statement.

Reed, who was the lead sponsor of the bill when Republicans had majority control of the House, said, “Bank qualified bonds save tax dollars. Using local bonds keeps the control, financing and benefits of capital improvements at home to boost jobs and facilities all across Western New York.”

“The legislation applies the bank qualified debt limit on a borrower-by-borrower basis, rather than aggregating all bank qualified bonds issued by a conduit issuer, so that schools, hospitals and other community organizations can more easily access capital,” the announcement said.

In addition, there would be an annual cost-of-living inflation adjustment to the $30 million limit rounded to the nearest $100,000.

National Association of Bond Lawyers board member Jodie Smith, a partner at Maynard Cooper & Gale in Birmingham, Ala. which is located in Sewell's congressional district, said NABL summarizes the bill's impact in terms of three "I"s. It increases the limit on bank-qualified bonds to $30 million from $10 million, indexes the limit for inflation and shifts the authorization to the issuer.

The bill filing, which had been promised before the House left town until Sept. 9, offers a placeholder on the shelf for the House Ways and Means Committee to consider if the tax-writing committee takes up infrastructure financing later this year.

Although hope has dimmed for enactment of a major infrastructure package this year, House Ways and Means Committee Chairman Richard Neal, D-Mass., told reporters Thursday he’s hoping to revisit the issue in the fall.

“I would hope we are going to find some agreement with the president on infrastructure,” Neal said in response to a question from The Bond Buyer on whether the Sewell-Reed bill might be considered. “I haven’t given up on it.

Neal added, “I can’t say it’s going to get done. I think that by the time we get to September and October it seems to me that everybody’s thinking will be pretty refined on it. The questions and the disagreements are, you know, narrowing a bit. And the conversations are pretty fluid so that by the time we get back in the fall I am hoping we are going to figure out the path we’re going to take.”

Municipal finance industry groups that are members of the Public Finance Network have made the restoration of advance refunding and increasing the limit on bank qualified loans top priorities for inclusion in any infrastructure package.

Lawmakers in the House and Senate also have filed several bills proposing new categories for the use of tax-exempt private activity bonds and increasing the national limit on infrastructure-related PABs.

Charles Samuels of Mintz Levin, counsel to the National Association of Health & Educational Facilities Finance Authorities, said Friday that state issuers “are delighted” by the introduction of the bill.

“A small change in the law could unleash a tremendous amount of infrastructure, health and education projects by thousands of small governments and charities,” Samuels said in an email. “NAHEFFA and our allies in nonprofit education and healthcare will be working to add cosponsors to this valuable legislation.”

Mike Nicholas, CEO of the Bond Dealers of America, and Emily Brock, director of the federal liaison center of the Government Finance Officers Association, also applauded the bill introduction, saying they are working to identify sponsors for a Senate version of the bill as well as additional House cosponsors.

Nicholas said enactment of the bill would increase access to “a cost-effective method of financing for local governments and financing authorities and further incentivizing community banks to invest in tax-exempt bonds to finance important local projects.”

Bank qualified debt, also known as BQ debt and bank eligible, allows banks to deduct most of the carrying cost of that debt as a business cost. But it can only be sold by an issuer that issues no more than $10 million of tax-exempt bonds during the calendar year.

The tax reform law of 1986 set the bank-qualified limit at $10 million and it’s remained there except for a two-year period in 2009-2010 when the American Recovery and Reinvestment Act raised the limit to $30 million.

ARRA also applied the limitation to individual borrowers rather than conduit issuers, which the law snapped back to afterward.

Under the higher limit permitted by ARRA, the Wisconsin Health and Educational Facilities Authority served as the conduit issuer for 35 bank qualified placements totaling $340 million in 2009-2010. Thirty-two of those issuances were under $20 million and many were private placements with banks.

Although some banks don’t have an appetite for bank-qualified deals and can’t offer a lower rate, there are community and regional banks that remain interested in working with local institutions.

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