What muni market groups are saying about TEFRA rules for PABs

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WASHINGTON -- State and local governments should be allowed to cancel a public hearing on the issuance of tax-exempt private activity bonds if no one signs up to speak within 24 hours of the meeting, the National Association of Bond Lawyers told tax regulators.

That’s among the suggestions NABL made in a letter sent last week to Treasury Department and Internal Revenue Service for changes to their proposed public notice and approval rules for PABs under the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982.

At least six other organizations and individuals also sent comments in late last year, including the Government Finance Officers Association, the National Council of State Housing Agencies and the National Association of Health and Educational Facilities Finance Authorities.

NABL and some of the other groups suggested shortening the advance notice requirement for the public hearing to seven from 14 days and withdrawing a requirement that an alternative public notice be given in addition to publishing the hearing notice on the governmental body’s website.

The proposed rules take into account tax law changes that have expanded the kinds of PABs that can be issued from the early 1980s. At that time the law only covered industrial development bonds. The rules also take into account technological changes such as widespread use of the Internet and electronic communications.

The proposed rules generally have received widespread support from municipal market participants.

Suggestions for additional improvements to them were submitted by Chuck Samuels, an attorney at Mintz Levin who is counsel to the NAHEFFA; Garth Rieman, director of housing advocacy and strategic initiatives for the NCSHA; and Bill Spivey, executive director of the Florida Development Finance Corporation.

Emily Brock, director of GFOA's Federal Liaison Center, J. Thomas Francis of Balch & Bingham in Birmingham, Ala., and Harold Huggins, director of the Council for Education, also submitted comments.

No public hearing on the proposed update of the regulations is scheduled, IRS spokesman Dean Patterson said in an email Wednesday.

Vicky Tsilas, who heads branch 5 in the IRS chief counsel’s office and co-authored the proposed rule, recently encouraged NABL to weigh in while speaking at a NABL Tax and Securities Law Institute on Feb. 22.

Tsilas also said IRS officials are hoping to finalize the TEFRA rules “as quick as we can.”

NABL’s six pages of comments were submitted six days later.

Matthias Edrich, a partner at Kutak Rock who served on the nine-member working group that composed the NABL comments, noted in an interview Wednesday that frequently no one from the public attends a TEFRA-mandated public hearing.

“As the NABL paper says, those hearings are sometimes a waste of time,” he said.

In addition, Edrich said the NABL comments “try to identify some technical interpretational problems where the bond community is interested in getting some clarifications even though these issues aren’t big picture issues.”

For instance, NABL wants a more precise definition of whether the term “maximum stated principal” should be the par-amount or the issue price. “NABL suggests that maybe the Treasury Department should be clear that this means stated par-amount,” Edrich said.

NABL and NAHEFFA objected to a new requires listing the maximum stated principal of each project that is being financed.

“That can be an easy task for small bond issues but a horrendously difficult task for large issues,” Edrich said, giving as an example a health system financing for 50 facilities in multiple states.

NAHEFFA said the proposed definition of “project” is different from the one used by accountants.

Hospitals and universities also support shortening the public notice requirement to seven days, as had been proposed in 2008 rules that were never adopted. Some states only require advance public notice of two days, the group said.

The FDFC's Spivey suggested that the public hearing requirement be dropped.

“It is unclear the purpose of having public notice and a public hearing for tax exempt bonds when a private or not-for-profit entity who does not receive any taxpayer funding or guarantee toward repayment of the bonds,” he wrote.

But the 1982 law that established TEFRA created a federal requirement for advance notice and a public hearing for interested parties.

GFOA's Brock wrote that allowing the public notice to occur on a governmental website "will likely allow for more frequent notice viewing by the public and will help with the administrative function of information delivery by the issuing entity."

"We do, however, disagree with the requirement that notices given in this manner be supplemented in some way," Brock said. "The Code requires 'reasonable public notice' and web postings meet that definition at this time, even if not every person has his or her own computer (or tablet or smart phone)."

Samuels said NAHEFFA is overall supportive of the proposed regulations. “We basically applaud it," he said. "Frankly, this is long overdue. It takes into account modern technology and practices. Since you don’t get these regulations too often, we want to maximize the benefit of what is really a deregulatory action.”

Samuel’s group also suggested that Treasury and the IRS consider allowing public hearings to be held by teleconference or webinar.

Reiman said NCSHA supports the proposal to “exempt Qualified Mortgage Bonds, Qualified Veterans’ Mortgage Bonds, and several other types of PABs from certain public approval requirements that IRS has long recognized do not apply to such bonds.”

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Private activity bonds Tax regulations IRS Treasury Department NABL GFOA NCSHA Washington DC