WASHINGTON -- Tax credit bonds, which have been banned since the end of last year under the new tax law, will be missed but not as much as advance refundings, bond lawyers said.

“Any loss of an effective financing tool is concerning; they were probably very important to those who used them,” said Sandy MacLennan, president of the National Association of Bond Lawyers and a Tampa-based partner of Squire Patton Boggs.

But MacLennan added, “The loss of this financing tool pales in comparison to the loss of advance refundings. The loss of advance refundings is felt much more widely.”

NABL president Alexandra "Sandy" MacLennan
NABL president Alexandra "Sandy" MacLennan NABL

MacLennan thinks issuers will cope. “Many of those projects could probably be financed by other means, but then the caveat to that is the economics might not work,” she said.

"It’s in effect, game over until there’s a change in Congress or perhaps administration, sadly,” said Ed Oswald, a partner in the Washington office of Orrick, Herrington & Sutcliffe.

Oswald has been a supporter of New Clean Renewable Energy Bonds (New CREBs).

“I don’t think anything is going to replace them,” Oswald said, explaining that “the reason policy makers liked them” was that they could provide a high subsidy level creating “a sweet deal” to encourage targeted investments.

Most categories of tax credit bonds were temporary programs, according to the nonpartisan Congressional Research Service, putting them into the category of tax extenders that periodically needed to be reauthorized.

The Internal Revenue Service recently issued an official notice canceling its request for applications for allocations of New CREBs.

New CREBS were among several categories of tax credit bonds authorized by Congress since the January 1998 introduction of qualified zone academy bonds in the Taxpayer Relief Act of 1997.

Qualified zone academy bonds endured for almost two decades with annual authorizations of $400 million that were allocated among the states, except during the Great Recession when Congress temporarily increased them to $1.4 billion through 2010.

To qualify, a school had to be located in an empowerment zone, an enterprise community or at least 35% of students federally eligible for free or reduced-cost lunches.

Congress, however, has not authorized qualified zone academy bonds in the last couple of years.

IRS spokeswoman Sarah Allen said in an email that no other termination notices of tax credit bond categories is planned.

Among the roughly 10 different categories of temporary tax credit bonds authorized over the years were disaster related-measures such as the Gulf Tax Credit Bonds and the Midwestern Disaster Area Bonds.

Others were part of the 2009 economic stimulus bill. The American Recovery and Reinvestment Act authorized the popular Build America Bonds, which could be used as direct-pay or tax credit bonds. New CREBs also were part of that bill, but nine years later some of the $2.4 billion authorized remained at the end of last year.

About $379.5 million for public power providers, $179.4 million for cooperative electric companies and $150.3 million for governmental bodies remained.

John Godfrey, senior government relations representative for the American Public Power Association, said the New CREBS program was hamstrung by volume limits and the time-consuming process of getting an allocation from the IRS.

“The percentage of wind and solar projects in which public utilities are involved is pretty small,” Godfrey said. “Most of the time we are involved in a power purchase agreement with a third party.”

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