WASHINGTON - Relief for municipal bond issuers from tax laws that require them to pay arbitrage rebate is not expected to be approved this year, an official of The Bond Market Association and other market observers said yesterday.
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The tax legislation that Congress is currently considering is made up of just a few large, specific pieces, and there does not appear to be support in Congress to attach a provision relaxing arbitrage rules or other riders, Frank Hampton, a lobbyist with TBMA, told those attending the annual federal policy conference of Council of Infrastructure Financing Authorities here yesterday
Hampton was skeptical that Congress would approve any arbitrage reform proposal this year, because the next possible vehicle for such a proposal is a tax bill "dealing in the international area."
"I don't see how arbitrage is going to fit on there," he said.
But, while no other tax bills are expected this year, Hampton added that that there is still 18 months remaining in this Congress and "hopefully there will be a vehicle out there that can be a resting place for meaningful arbitrage reform."
Other observers believe that arbitrage relief is an issue for next year, when it stands a better chance of passing.
"Fiscal 2004 is going to be an extraordinary painful year for state and local governments ... that's where I think the momentum" for arbitrage reform will come from, George Friedlander, fixed-income strategist at Citigroup Global Markets Inc., told the group. Friedlander stressed that his comments do not reflect those of Citigroup.
CIFA represents state and local officials that operate the clean water and drinking water state revolving loan funds. The clean water and drinking water SRF programs provide low-interest loans for water infrastructure projects and have become a major source of water infrastructure financing. Several states have leveraged the program by issuing bonds.
Last year, CIFA led a campaign to remove all arbitrage rebate restrictions from tax-exempt bonds sold for clean water and drinking water SRFs. But the attempt failed after tax provisions of a bill introduced by the House Transportation and Infrastructure Committee were yanked from the measure by the House Ways and Means Committee, which oversees tax issues in the House.
