Legislative Front...

The Legislative Front brings you up to speed on all of CDFA's legislative action over the past year. Each month, the Legislative Front highlights the organizations ongoing efforts to impact change on Capitol Hill for the programs that impact the development finance community. Click on the month/year for the desired Legislative Front report.

September 2006
Congress was on recess during August with very little activity taking place on Capitol Hill. CDFA’s legislative staff remained active however and the Council’s updated legislative agenda was featured in an early August edition of The Bond Buyer. CDFA also began the process of building consensus on the updated legislative agenda by holding a conference call with the National Association of Bond Lawyers. And, the Council continues to monitor the legislative scene in Washington, DC.

Update Legislative Agenda Featured in The Bond Buyer
CDFA’s update legislative agenda, which outlines the organization’s revised priorities for the next legislative season, was featured in the August 8 edition of The Bond Buyer. The article, written by Alison McConnell features quotes for CDFA’s executive director Toby Rittner and outlines both the short term and long-term plans for improving the use of tax-exempt IDBs for economic development. The CDFA Legislative Committee worked throughout July to finalize updates to the Council’s legislative strategy following the passage of the IDB capital expenditure limitation increase amendment in May. This amendment had been CDFA’s number one priority and with its passage the committee recognized the need for an updated strategy. The revised strategy is available online and the article is featured in this month’s headlines from The Bond Buyer section of the CDFA Update e-newsletter.

CDFA Holds Conference Call with NABL
Legislative Committee Chair Bob Lind, legislative counsel John McMickle and CDFA executive director Toby Rittner participated in a conference call with representatives from the National Association of Bond Lawyers in late August. The conference call was the first step in CDFA’s revamped efforts to work towards modifying the definition of manufacturing for the use of IDBs. The definitional issue is the new number one priority on the revised legislative agenda unveiled by CDFA in August. NABL, a national non-profit organization representing the municipal bond legal industry, have worked with CDFA in the past on clarification issues relating to IDB improvements. CDFA plans on working over the next few months to develop policy that effectively broadens the definition of manufacturing as it applies to use of IDBs. This policy, which will impact a wide range of bond industry stakeholders, is critical to the continued use and success of IDBs for economic development. NABL was open to the option of providing technical review of any proposed CDFA policy and agreed to maintain an open and direct dialogue with the Council as it progresses through the legislative process. CDFA’s goal for the upcoming legislative season is to build a general consensus among the various bond industry stakeholders to ensure that all groups are in agreement with any proposed policy changes recommended by the organization. This conference call was the start of a very long process to build this consensus.

Senate Appropriations Update
In July, the Senate Appropriations Committee approved the FY 2007 Transportation, Treasury, HUD and Related Agencies bill rejecting the Administration's proposed reduction/elimination of CDBG, Rural Housing and Economic Development, Section 202 and 811 and Section 4. The Senate Appropriations Committee has approved all of the funding levels listed below. The full Senate must now approve the funding levels and then reconcile differences with House-approved funding levels before becoming law.

Highlights

Community Development Fund (CDF): The Senate bill includes $4.2 billion for the CDF, an increase of $37.2 million above the FY 06 level. The bill includes $4.1 billion for the Community Development Block Grant (CDBG) program.

HOME Program: The bill includes $1.9 billion for HOME, which is $184 million over the FY06 level and an increase of $25 million above the budget request.

Capacity Building and Section 4: The bill includes $31 million for Sec. 4 for capacity building funds for CDC's, administered by LISC and Enterprise.

CDFI: The Community Development Financial Institution received $55 million in the Senate bill. This is equal to last year's CDFI funding level and $15 million more than the House-approved funding level.

Minority Entrepreneurship Legislation Introduced
Legislation intended to bolster entrepreneurship education for minority college students is being considered in the U.S. House and Senate. Congressman Elijah Cummings and Senator John Kerry are sponsoring legislation to create a two-year pilot program that would develop curriculum at historically Black colleges and universities, Tribal colleges and universities and Hispanic-serving institutions as a means of increasing entrepreneurship traditionally underserved communities. In addition to the new curriculum, the $24 million program would help provide capital for graduates to start their own business. Before the summer recess, the Senate version unanimously passed out of the Senate Committee on Small Business and Entrepreneurship. The House version, with 40 Democratic cosponsors, was recently referred to the House Committees on Education and the Workforce and Small Business.

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August 2006
Legislative activity has been slow on Capitol Hill thus far this summer. CDFA’s Legislative Committee however has been very busy. Led by Bob Lind and assisted by CDFA’s Legislative Counsel John McMickle from Winston & Strawn, the Committee held a conference call meeting in mid-July to regroup after the passage of the Council’s capital expenditure limitation increase amendment in May. CDFA also continues to monitor federal legislation impacting the development finance industry. With Congress on recess for the remainder of August, now is a good time to recap the past month’s legislative activity of the Council.

Legislative Strategy Updated
The CDFA Legislative Committee met in July to re-examine the organization’s legislative strategy. Prior to May, the acceleration of the capital expenditure limitation increase date for IDBs was CDFA’s number one priority. Following passage of an amendment in early May to move the capital expenditure limitation (increased to $20 million) increase date up to December 31, 2006, the legislative strategy required updating. The Legislative Committee reviewed the remaining items on the agenda and agreed that updating the definition of manufacturing for small issue IDBs was the next most important element to focus on in Washington. Thus, remedying the definition of manufacturing to include biotech, software, technology and other new economy manufactures becomes CDFA new number one priority. To achieve this goal, CDFA staff and members will be making the rounds in Washington to build a partnership and consensus on the appropriate and renewed definition. More information on this effort will be announced as discussions and partnerships develop. CDFA will also be reaching out to the national partners from NABL, GFOA and TBMA to build consensus on a new definition that all parties can support.

The second priority of the Committee will be increasing the maximum IDB bond size limitation from $10 million to $20 million. Much like the capital expenditure limitation, this limitation was established in the late 1970’s and has not been adjusted for inflation over time. In today’s economic terms, $10 million has only half the purchasing power that was available when the figure was determined nearly 30 years ago. CDFA proposes the increase of this figure from $10 million to $20 million. This change would allow more users access to this financing and provide a stronger tool for the economic development community. The Committee understands that the passage of this item will take a considerable amount of support from Capitol Hill. Staff and CDFA’s legislative counsel will begin the education process on the Hill shortly to build a broad ranging coalition of supporters.

Toby Rittner, CDFA's Executive Director, stated "the updated agenda and approach by the legislative committee will allow CDFA to refocus following the passage of the capital expenditure amendment back in May. Our two year effort on Cap Ex resulted in a positive change for the industry and we hope to build in this success by working with Congress and other national partners to continue to improve the laws that govern industrial development bonds."

The final two bond priorities in the updated legislative agenda include amending the limitations on bank-qualified bonds and eliminating the impact of AMT on IDBs. Both of these items remain long-term goals of the Council, as they will take considerable effort for passage in Congress.

CDFA’s Legislative Committee will continue to monitor the federal budget as it relates to federal funding and appropriations for financing programs. The Committee will also keep an eye on efforts to curtail or limit the use of eminent domain for economic development as it relates to the use of tax increment financing and other special district finance tools.

New Markets Tax Credit Coalition Working Towards Extension
The NMTC is set to expire at the end of 2007 and CDFA is helping lend support to the one-year and eventual five-year extension of this important development finance tool. The NMTC was established in the Community Renewal Tax Relief Act of 2000. Its purpose was to provide investors with a modest federal incentive – a 39% credit against federal taxes over a seven-year period – to help lure investments and spur job growth and economic development in low –income communities.

According to the New Markets Tax Credit Coalition, there is ample evidence that the Credit is successfully achieving this objective. In only two years, the NMTC has raised over $3.5 billion in private sector capital, which is over half the $6 billion allocated in the first two rounds of the Credit. In the last quarter of 2005 alone, NMTC Allocatees received approximately $1 billion in new investments. Investors range from national financial services organizations such as JPMorgan Chase to local and regional banks like Sprint Bank of Bristow, Oklahoma.

CDFA is doing its part to help support the reauthorization efforts. Currently the House and Senate are considering one-year extension of the NMTC in separate bills. The Coalition is working with both chambers to build support for a one-year extension and meanwhile building a long-term plan for a five-year renewal of the bill. The one-year renewal would allow the NMTC to operate through 2008 with $3.5 billion available for allocations. The five-year renewal strategy being pursued by the coalition would approve $17.5 billion in tax credit allocations from 2008-2012. The first year of the new five-year renewal would encompass the one-year extension portion. More information on the NMTC reauthorization process can be found at http://www.newmarketstaxcreditcoalition.org/index.html.

CDFA will hold its Tax Credit Finance Course this coming November 8-9 in Baltimore, MD. The NMTC will be featured during this course.

House Committee Reauthorizes Brownfields Bill
On July 19, the House T&I Committee passed H.R. 5810, a bill that would reauthorize the Small Business Liability and Brownfields Redevelopment Act. Brownfields are properties whose redevelopment is hindered by either real or perceived contamination. Many groups, including CDFA have been lending support to this reauthorization effort. The current law was passed in 2002 and is set to expire at the end of this year.

According to the U.S. Conference of Mayors, the bill passed by the committee authorizes $200 million for the next six years for brownfield assessment and cleanup funds along with money for state programs to assist with their brownfield activities including state voluntary cleanup programs. The only major modification was the elimination of the petroleum set-aside program. Under the current law, a certain percentage of the appropriations had to be set-aside to cleanup sites that were contaminated by petroleum products. The new bill would still allow cleanup of these sites but on a competitive basis with other sites.

CDFA will continue to monitor the movement of this brownfield reauthorization measure and provide updates as the legislative process goes forward.

"CDFA has begun to weigh in on a number of other pending legislative issues that are impacting the development finance industry. This is a new focus for the Council and we are excited to work with the industry stakeholders on securing a solid federal toolkit of programs and financial resources for the economic development community to use,” said CDFA Executive Director Toby Rittner.

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May 2006
CDFA’s lobbying and grassroots efforts kicked into high gear during the month of April, as the Tax Reconciliation Bill Conference Committee nearly reached its much-awaited resolution. However, an agreement fell through before the start of the April Easter recess. CDFA’s legislative team, along with CDFA legislative counsel, John McMickle, continue to monitor the process as it develops.

Tax bill agreement still pending
An agreement is still pending on the Tax Reconciliation Bill. Section 403 of the bill, a CDFA-backed provision, is among the many being reviewed by the Tax Reconciliation Bill Conference Committee. Section 403 moves the effective date for the increase in the capital expenditure limitation from $10 million to $20 million up form 2009 to December 31, 2006. An agreement was almost reached during the first week of April, however, negotiations fell through and the expected agreement was not reached before the Easter recess.

CDFA’s Legislative Counsel, John McMickle, indicated that we would have a better idea of a possible conclusion to the negotiations after the Senate and House reconvene on April 24 and 25, respectively.

McMickle has been in contact with Senator Chuck Thomas’ office. According to McMickle, Senator Thomas’ office reported that there is as of yet no consensus on the much-awaited resolution regarding the tax bill. However, there is optimism that a deal will be brokered in the near future.

Furthermore, McMickle also reported that the committee was not yet ready to consider the smaller provisions in the bill, Section 403 among those. Once a consensus is reached on the central provisions of the bill, the Committee will begin negotiating on the smaller provisions.

Finally, McMickle estimated that if a deal regarding the central provisions were reached this week, perhaps an additional week or two would see an agreement on the overall tax bill. CDFA’s legislative team will continue to keep our members informed of furthers developments as they take place.

CDFA almost declared legislative victory
CDFA almost declared a legislative victory during the month of April. During the first week of April CDFA Legislative Counsel John McMickle informed us that the House and Senate Tax Reconciliation Bill Conference Committee were close to finalizing a much-awaited resolution.

CDFA’s legislative team immediately went into action initiating grassroots efforts. The Council contacted individual members in Iowa and Wyoming and asked them to contact Senators Chuck Grassley (R-IA) and Craig Thomas (R-WY), to request their support for Section 403 of the tax bill. Senators Grassley and Thomas, members of the Senate Finance Committee, have both pledged support for the CDFA amendment.

However, the much hoped-for agreement did not come to fruition. Following weeklong discussions designed to reach an agreement before the April 10 Easter recess, plans fell apart late in the day on April 6. House Ways and Means Committee Chair Bill Thomas (R-CA) met throughout the day with Senate Majority Leader Bill Frist (R-TN) and Senate Finance Committee Chair Chuck Grassley in hopes of brokering a deal. Had a deal been reached, a vote for the resolution could have been expected on April 7.

The CDFA legislative team would like to take this opportunity to thank our members in Iowa and Wyoming for their support in our continuing legislative efforts regarding Section 403. The Council would specially like to thank Lori Beary of the Iowa Finance Authority and Ben Avery of Wyoming Business Council for their outstanding support. With the pooled resources of our extensive network, a CDFA legislative victory is expected in the near future.

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April 2006
CDFA was once again very busy in March addressing a number of pending legislative issues and the Council's expertise was used in helping address TIF issues in Arizona. The tax-exempt bond industry also continues to get considerable press on Capitol Hill as several major groups sounded off in April on the importance of preserving this valuable financing tool. The following is an overview of the CDFA’s busy legislative month.

CDFA Provision Still Under Review

A consensus on the differing versions of the Tax Reconciliation Bill is still pending from the joint Tax Reconciliation Bill Conference Committee.

CDFA’s legislative counsel, John McMickle, said that the delay was not due to CDFA’s provision. Instead, he said that a budge point of order was delaying the procedures. He added that a major concern was the effects the tax changes would have beyond the 5-year window.

The conference committee held its first public meeting last week. A final decision is expected before Easter. CDFA is still garnering grassroots support for the IDB amendment in the Senate version of the tax bill. As further developments transpire, the Council’s legislative team update the industry on a routine basis.

Congressman Brady Reintroduces Clean Air and Water Investment Act

Congressman Kevin Brady (R-TX) reintroduced the Clean Air and Water Investment Act before the 109th Congress on 9 March 2006. The bill is intended to change the existing tax code to allow privately owned air and water pollution control facilities to be financed with tax-exempt private-activity bonds.

If approved, the bill would restore the term ‘air and water pollution control facilities’ to Section 142 of the Internal Revenue Code. The bill would not amend the provisions of Section 146 of the code relating to state volume caps on the use of tax-exempt financing. Instead, proposed tax-exempt bonds for air and water pollution control would be issued under the existing caps and would not increase the total amount of private activity state and local bond issuance. Under the proposed guidelines, the new bonds would compete with other requests for tax-exempt financing.

Congressman Brady appeared before the Subcommittee on Select Revenue Measures of the House Committee on Ways and Means on 16 March 2006. He argued that the nation’s progress in the reduction of the release of pollutants into the air and water was directly related to projects financed by private activity bonds for air and water pollution facilities. In addition, he argued that whereas for fiscal year 2006 an estimated $34.86 billion is lost by the federal government from tax-exempt interest on municipal debt, only and estimated $480 million or 1.4% of total tax-exempt bonds are lost on pollution control.

Air and water pollution control facilities were removed from the list of exempt facilities eligible to be financed with private-activity bonds in the Tax Reform Act of 1986. Congressman Brady had earlier introduced the bill in September 2003. In addition to permitting the issuance of tax-exempt bonds, this version of the bill also provided that the volume cap for private activity bond not apply for air and water pollution control facilities.

CDFA will continue to monitor legislative developments regarding this bill.

CDFA Petitions for Select Revenue Measures

On 16 March 2006 representatives from GFOA, TBMA, and NABL testified before the Ways and Means Subcommittee on Select Revenue Measures, addressing the status of the municipal bond markets and the efficacy of tax-exemption.

The committee requested commentaries from other concerned entities in addition to the testimony provided by GFOA, TBMA, and NABL. To that end, the Built by Bonds Coalitions, of which CDFA is a member, is submitting a letter expressing its support for the tax-exempt municipal bond market as the best possible vehicle to finance important public infrastructure.

The letter argues that capital markets, in their capacity to finance infrastructure projects and the discipline they enforce on borrowers, are the best funding source for the capital need of state and local governments. In addition, it argues that without tax-exemption, thousands of state and local governments would not have access to the capital markets.

CDFA has signed the support letter on behalf of its membership to advance the interests of the development finance community in general.

CDFA Quoted in Arizona Daily Star

Toby Rittner, Executive Director, and Alex Iams, Director of Research and Technical Assistance for CDFA, were quoted in a 12 March 2006 article on the Arizona Daily Star. The article, reporting the intention of Tucson city officials to extend the Rio Nuevo taxing district from 10 to 40 years, highlighted the district’s uniqueness in its application of tax-increment financing.

The article reported that unlike the majority of TIF districts, which are funded by increased incremental property taxes, the Rio Nuevo district is funded from sales taxes. In addition, the physical shape of the district, a downtown core sector with an outstretched corridor of retail districts, is also a notable departure from other TIF districts.

Rittner noted the rarity of attaching TIF to existing retail use that isn’t directly involved with redevelopment projects, adding that most TIF districts consisted of single or contiguous properties.

According to the Arizona Daily Star, Tucson argues that a TIF district such as Rio Nuevo lasts between 30 and 50 years. Hence, the existing 10-year lifespan is inadequate for the purposes of the project.

Iams suggested that the typical lifespan of TIF districts funded by property taxes is between 23 and 25 years. He added that 25-year districts are assigned for millions in TIF money, whereas 15-year districts are intended for projects in the hundreds of thousands of dollars. He also agreed that sales taxes were rare, underused because of their lack of reliability compared to property taxes, and noted that they were allowed in only eight states and the District of Columbia.

According to the Arizona Daily Star, Tucson is bound by state law to employ implement sales taxes in funding TIF districts. The Rio Nuevo TIF district is expected to raise $124 million over a period 10 years.

CDFA Legislative Website Updated with 2006 Legislative Agenda

CDFA has posted its 2006 Legislative Agenda on the legislative section of the website. CDFA’s legislative committee, chaired by Board Member Bob Lind from the City of Minneapolis Department of Community Planning and Economic Development, had finalized the 2006 Legislative Agenda in mid January.

The agenda outlines CDFA’s legislative strategy in three policy initiatives covering a wide range of legislative issues:

First, CDFA will look to improve the use of IDBs by moving the 2004 capital expenditure increase date up for qualified small issue bonds from 2009 to December 31, 2006. CDFA will accomplish this by amending the definition by which users qualify for small issue bonds to include new economic strategies, amending limitations on bank-qualified bonds, modifying or eliminating AMT of IDBs, and increasing the maximum IDB bond size limitation from $10 million to $20 million.

Second, CDFA will advocate for sound practices in the use of tax increment financing. CDFA has already taken the initiative by establishing the new Tax Increment Finance Coalition (TIFC), in order to become a leading advocate for the sound use of TIF.

Third, CDFA will remain committed to supporting federal financing programs. CDFA will accomplish this goal by advocating for the continued support of Congress for federal economic development finance programs and legislation that supports this industry.

The agenda committed CDFA’s vast resources and strong member connections to leverage influence for improving these important economic development finance tools.

>>>Read the Full Agenda

The Bond Market Association (TBMA)

On March 16, 2006, Micah Green, TBMA President and CEO, testified before the Ways and Means Subcommittee on Select Revenue Measures. Micah emphasized that tax-exemption for municipal bonds is the most efficient and effective means available to Congress to deliver federal assistance to state and local governments. The number of tax-exempt bond-related bills pending before the Ways and Means Committee has grown significantly in the past several years and TBMA looks forward to working with market participants to ensure that the market remains an efficient tool for funding infrastructure development for state and local governments.

The Senate recently voted to raise the debt ceiling by $781 billion, increasing the limit to $8.97 trillion. The measure passed by a vote of 52-48. The House has already passed a resolution to increase the debt ceiling. The Association recently circulated a letter to congressional leadership calling for quick action on the debt limit increase as well as a white paper explaining the benefits of non-U.S. ownership of Treasury debt.

Source: Joseph Vaughan, TBMA

National Association of Bond Lawyers (NABL)

On March 16, Walter J. St. Onge III, President of the National Association of Bond Lawyers (NABL), testified before the House of Representatives Committee on Ways and Means Subcommittee on Select Revenue Measures on tax-preferred bond financing. This hearing was convened to review tax-exempt financing to determine the economic impact to the federal government; to ascertain whether tax-preferred bond financing supports business activities offering a public benefit; to examine the effect of expanding the use of tax-exempt financing; and to consider the effect of this expansion on oversight and administration.

In addition to NABL’s testimony, Members of Congress of both parties, and representatives from TMBA and GFOA expressed support for retaining the tax-exempt finance market and expanding the use of certain types of bond financing. NABL emphasized that the municipal bond market is an important element of the United States economy; it is also the underpinning of the unique federal system of state and local self-government; and the role of bond counsel is a cornerstone of the market's efficient operation.

Walter St. Onge's testimony can be found of the NABL web site at: http://www.nabl.org/library/comments/NABLTestimony.pdf

The hearing archive can be accessed here: http://waysandmeans.house.gov/hearings.asp?formmode=detail&hearing=466&comm=6

Source: Ming-Wai Farrell, NABL

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March 2006
CDFA has intensified its advocacy efforts to promote the accelerated date for increasing the capital expenditure limitation for small issue industrial development bonds. Following the House and Senate’s appointment of conferees to the Tax Reconciliation Bill Conference Committee, CDFA has contacted the conferees requesting their support for the capital expenditure increase amendment. The CDFA Legislative Team ,has also begun grassroots efforts among its membership in seeking support for the amendment.

In addition to these important efforts, CDFA’s is preparing a Community Reinvestment Act (CRA) fact sheet to be presented in the April CDFA Update e-newsletter. The following report is a recap of the past month’s legislative efforts with some additional insight into the Council’s legislative activities for the coming months.

CDFA Continues to Lobby Congress for Support of Small Issue IDBs

Following both the Senate and House’s appointment of conferees to the Tax Reconciliation Bill Conference Committee, CDFA intensified its lobbying efforts for support of its Senate-passed amendment accelerating the effective date for increasing the capital expenditure limitation for small issue industrial development bonds.

CDFA’s legislative team directed letters on behalf of its membership and the development finance community to the Senators and Representatives appointed to the conference committee. Those conferees for the bill include:

United States Senate
Senator Chuck Grassley (R-IA)
Senator Jon Kyl (R-AZ)
Senator Max Baucus (D-MT)

United States House of Representatives
Representative Bill Thomas (R-CA)
Representative Jim McCrery (R-LA)
Representative Dave Camp (R-MI)
Representative Charles Rangel (D-NY)
Representative Pete Stark (D-CA)

CDFA’s letters addressed, above all, the importance of the application the Senate-passed amendment in the conference committee’s final version of the Tax Reconciliation Bill for the development finance industry. The letters directed at the appointed Senators requested their continued support for the amendment, whereas those addressed to the appointed Representatives advocated for the amendment’s importance to the development finance industry, while also requesting its inclusion in the final bill.

The conference committee is currently meeting to finalize an agreement between the two differing Senate and House versions of the bill. The Senate passed its version of the Tax Reconciliation Bill on November 18 of last year. This version, called the Tax Relief Act of 2005 (S. 2020), includes a host of bond-related measures including CDFA’s amendment. Section 403 of this bill includes an amendment, offered by Senator Craig Thomas (WY), which will advance the capital expenditure increase of $10 million to $20 million for the use of small issue IDBs from September 30, 2009 to December 31, 2006. The House passed its version of the bill on December 8. However, this version did not contain CDFA’s amendment.

This item continues to be CDFA’s number one legislative issue. For continuously updated information on CDFA’s lobbying efforts before Congress please visit the council’s legislative website.

Grassroots Key to Amendment Passage

CDFA has also begun a grassroots effort among its membership in seeking support for its Senate-passed capital expenditure increase amendment.

CDFA’s legislative team has begun contacting its members in states directly represented by the Senate and House conference committee members. Members in represented states have been encouraged to contact their Senators or Representatives. Represented members should address a letter to their respective Senators or Representatives encouraging their full support for Section 403 of the Senate-passed Tax Relief Act of 2005 (S. 2020).

In addition, CDFA encourages its members not directly represented by the conferees to help build support for the amendment through back-channel communications. Members not directly represented by conference committee members are encouraged to contact their elected officials asking them to contact their colleagues on the conference committee to ask them to support Section 403 of the Senate-passed Tax Relief Act of 2005 (S. 2020). This method of contact can be the difference between passage and omission.

CDFA has prepared sample letters and supporting documents for those needing assistance with this grassroots effort. For further assistance on how to assist CDFA’s grassroots effort please contact the legislative team immediately.

CRA Fact Sheet Coming in April

CDFA is currently preparing a fact sheet on the Community Reinvestment Act (CRA) to be presented in next month’s e-newsletter. The fact sheet will include, among other facts, a history of the enactment and revision of CRA, the findings that prompted its enactment, federal requirements of financial depository institutions governed by CRA, and the guidelines for evaluating financial depository institutions’ performance in considering their application for deposit facilities – i.e.: acquisitions, approval of bank mergers, branch openings, and charters. The information provided in the fact sheet will be a helpful overview of this federal financial regulation for CDFA’s membership.

Government Finance Officer’s Association (GFOA)
The Government Finance Officer’s Association and other members of the PFN have continued to call for significant changes to, or elimination of, the pooled financing and tax-exempt interest reporting requirement provisions in the Tax Reconciliation Bill (H.R. 4297). GFOA has met with the Senate Finance staff, staff of the Joint Committee on Taxation, and continued our grassroots efforts to convince Congress of the detrimental impact the provisions would have on many, especially small, communities throughout the United States.

On February 24th, the GFOA's Executive Board adopted a new Recommended Practice, “Tax Increment Financing as a Fiscal Tool,” which the GFOA's Governmental Debt Management and Economic Development and Capital Planning Committees approved in January. The RP outlines criteria a jurisdiction should establish when deciding whether a TIF district is appropriate for a jurisdiction's overall development plan and various elements that should be discussed throughout the process. A copy of the RP is located on the GFOA's web site - www.gfoa.org.

On February 26th, the House Ways and Means Select Revenue Measures Subcommittee announced a hearing on "Use of Tax-Preferred Bond Financing," for March 16, 2006. This hearing will review legislative efforts that have been pursued and enacted regarding various tax-exempt and tax-credit bond programs, and the economic efficiencies of these programs.

Source: Susan Gaffney, GFOA

The Bond Market Association (TBMA)
The Treasury Department recently announced that it would suspend issuance of State and Local Government Series (SLGS) securities this week to prevent borrowing levels from reaching the debt limit. State and Local Governments use these non-marketable securities (SLGS) as an important tool to refinance their municipal bonds. The Bond Market Association strongly supports the timely increase in the federal debt ceiling and has encouraged the leadership of the House and Senate to take action on this issue. Quick action by Congress will mitigate market uncertainty and ensure that the federal government will continue to finance itself at the lowest cost possible. The Treasury Department warns that without an increase it will exhaust its statutory borrowing power by mid March. The Bond Market Association will continue to work with the Congress, Treasury and other market participants to ensure market stability in this area.

The House and Senate have appointed conferees to address differences in their respective tax reconciliation bills (H.R 4297) and the Senate’s amended version of H.R. 4297. The Bond Market Association recently sent letters to tax reconciliation conferees encouraging their opposition to new limitations on Pooled Bond Issuance and Qualified Zone Academy Bond (QZABs) programs. The new pooled bond limitations would impose new loan commitments and spend down requirements for pooled bond arrangements. The Bond Market Association is encouraging the exemption of state-level pools (i.e., revolving funds for waste water), which are closely monitored programs that have never been identified as potentially abusive.

The Association supports the $400 million two-year extension of the QZAB program in the Senate legislation. The bill, however, proposes several unnecessary changes to the program that would limit its effectiveness and undermine congressional intent. The Senate proposals would:

• Require a cash contribution in lieu of a 10 percent in-kind donation, which would make QZABs available to fewer school districts.
• Dilute the effectiveness of the QZAB program by requiring ratable amortization of QZAB principal.
• Apply complex arbitrage restrictions to QZABs.

The Bond Market Association is encouraging conferees to support the proposed increase in the capital expenditure limit for tax-exempt Industrial Development Bonds. The change would better reflect the capital investment needs of small manufacturers.

Source: Joe Vaughan, TBMA

What to Expect in the Coming Months

The CDFA legislative team will continue to monitor the tax reconciliation process on Capitol Hill. The council will also continue its grassroots efforts to lobby Congress and the Tax Reconciliation Bill conference committee for their support for small-issue industrial development bonds. Be sure to keep informed of these and other legislative developments on the Legislative Affairs section of CDFA’s website! We will continue to update the legislative website with the new developments as they unfold.

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February 2006
In 2006, CDFA looks to build on its legislative successes of the past two years. The Council’s Legislative Committee, led by Board Member Bob Lind from the City of Minneapolis Department of Community Planning and Economic Development, was very active in January focusing on this year’s strategy and building new relationships to achieve legislative success. CDFA’s legislative team also continues to monitor the status of small-issue industrial development bonds (IDB) legislation currently being debated in Congress. The Council’s legislative efforts were reported in two January editions of The Bond Buyer. The following report is a recap of the past month’s legislative efforts.

CDFA Publishes Legislative Agenda for 2006
CDFA’s Legislative Committee finalized the Council’s legislative agenda for 2006 in mid January. The agenda outlines CDFA’s legislative strategy in three policy initiatives covering a wide range of legislative issues:

First, CDFA will look to improve the use of IDBs by moving the 2004 capital expenditure increase date up for qualified small issue bonds from 2009 to December 31, 2006. CDFA will accomplish this by amending the definition by which users qualify for small issue bonds to include new economic strategies, amending limitations on bank-qualified bonds, modifying or eliminating AMT of IDBs, and increasing the maximum IDB bond size limitation from $10 million to $20 million.

Second, CDFA will advocate for sound practices in the use of tax increment financing. CDFA has already taken the initiative by establishing the new Tax Increment Finance Coalition (TIFC), in order to become a leading advocate for the sound use of TIF.

Third, CDFA will remain committed to supporting federal financing programs. CDFA will accomplish this goal by advocating for the continued support of Congress for federal economic development finance programs and legislation that supports this industry.

The agenda committed CDFA’s vast resources and strong member connections to leverage influence for improving these important economic development finance tools. CDFA will be sending out an official announcement of the new agenda in February. The full agenda can be requested by contacting CDFA.

Status of CDFA’s Current Efforts on Capitol Hill
CDFA and the development finance community await the announcement of House and Senate conferees to the Tax Cut Reconciliation bill conference committee soon after the House reconvenes on January 31. Once appointed, conferees are expected to work on a compromise between the differing versions of this important bill.

The Senate passed its version of the bill on November 18 of last year. This version, called the Tax Relief Act of 2005 (S. 2020), includes a host of bond-related measures recommended by the Joint Committee on Taxation, and lobbied by the Council of Development Finance Agencies. Section 403 of this bill includes an amendment, offered by Senator Craig Thomas (WY), which will advance the capital expenditure increase of $10 million to $20 million for the use of small issue IDBs from September 30, 2009 to December 31, 2006. This item has been CDFA’s number one legislative issue over the past two year years.

The House passed its version of the bill on December 8. However, this version contained no bond-related provisions save an extension of the qualified zone academy bond program.

A compromise between the differing versions of the bill was stalled because the House and Senate were not able to appoint a conference committee before the holiday recess. Once the conferees are announced, CDFA will begin its grassroots efforts to mobilize supporters of the Council’s amendment. For more information about this effort please visit CDFA’s legislative webpage.

CDFA’s Lobbying Efforts Covered in The Bond Buyer
CDFA’s plans for lobbying Congress to loosen rules governing IDBs were covered in the January 9 and January 26 edition of The Bond Buyer. These articles stated that CDFA would closely monitor the tax reconciliation process on Capitol Hill and continue to push for relaxed rules in the economic development sector. The January 9 article (pg. 6) announced that CDFA would soon launch a grassroots campaign to lobby Congress to approve an accelerated increase in the capital expenditure limit for small issue IDBs. The January 26 article (pg. 6) reported CDFA’s commitment to monitor the tax reconciliation process of Capitol Hill and “push for relaxed rules in the economic development sector to aid local job creation and economic growth” and announced the organization’s 2006 legislative strategy and agenda. The January 26 article is available through this month's CDFA Update e-newsletter.

Monitoring our Partners

CDFA actively works with its partners in the development finance industry to advance a number of legislative items. The following are a recap of the month’s news from our legislative partners.

The Bond Market Association:
The Bond Market Association worked closely with the Built-by-Bonds Coalition, which CDFA is a member of, during the 2005 legislative year to prevent Congress from adopting a number of provisions that would raise the cost of financing for state and local governments. Congress appears to have dropped consideration of the most harmful of the provisions—an elimination of advance refunding and the 2 percent de minimis rule. A proposal to require issuers to provide information on the recipients of tax-exempt interest to the Internal Revenue Services may be adopted – though modified – to place the reporting requirement on broker-dealers. Also, the Senate version of tax reconciliation legislation (S.2020) includes new restrictions on pooled financings. State-level pools, however, would be exempted from the new rules.

Going forward, the Association will continue to monitor the legislative process to identify efforts to raise tax revenue by making potentially harmful changes to the municipal markets, including potential efforts to enact fundamental tax reform.
Source: Joe Vaughan, The Bond Market Association

International Economic Development Council (IEDC):
IEDC continues to work to protect the ability of communities to judiciously use eminent domain. Despite the efforts of IEDC and other organizations, such as the National League of Cities and the American Planning Association, the House passed damaging legislation. The House passed a bill barring state and local governments that exercise eminent domain for economic development from receiving federal development funds (HR 4128). The Senate version of the bill (S. 1313) currently has 31 co-sponsors. For more information, please visit IEDC's eminent domain web page: http://www.iedconline.org/?p=Eminent_Domain

IEDC expects the Bush administration to once again seek a sweeping reorganization of federal economic and community development programs, along with substantial cuts in program funding. The administration’s proposal is called the “Strengthening America’s Communities Initiative” (SACI). According to White House sources, the Administration will offer legislation to authorize SACI, though the organization of the initiative may differ from its last iteration. IEDC will vigorously oppose any reduction in total funding to economic development programs.
Source: Maggie Bergin, International Economic Development Council

The National Association of Bond Lawyers (NABL):
The National Association of Bond Lawyers (NABL) sent a letter to the Treasury on December 7, 2005 in response to the report of the President’s Advisory Panel on Federal Tax Reform. In the letter, NABL focused on three aspects of the tax-exempt bond rules: ways to simplify the boundary for traditional tax-exempt governmental bonds under the private activity bond definition; ways to reduce the administrative impact of the arbitrage investment restrictions; and ways to simplify the common restrictions on most tax-exempt private activity bonds in recognition of the effectiveness of the private activity bond volume cap. A copy of this letter can be found on the NABL web site at http://www.nabl.org. NABL will continue to promote the integrity of the municipal market by advancing the understanding of and compliance with the law affecting public finance.
Source: Elizabeth Wagner, National Association of Bond Lawyers

Government Finance Officers Association
The GFOA has been working in concert with other public finance organizations on behalf of the Public Finance Network, which CDFA is a member of, regarding two tax-exempt bond provisions contained in the Senate's Tax Reconciliation Bill - S. 2020. These two issues are separate from CDFA’s capital expenditure limitation increase provision. The House’s version of the bill does not include any tax-exempt bond provisions. GFOA is working to ensure that the non-IDB capital expenditures, tax-exempt bond provisions from the Senate bill are not included in the final legislation.

Of importance to state and local governments, the Senate tax bill contains a provision that would place greater restrictions on all pooled financing bonds, including SRF and state run pools. Most notably it would require a written commitment from the ultimate borrower and also mandate that 50% of the net proceeds be lent in the first year. Also, the small issuer arbitrage rebate exception for small governments who host a pool would be withdrawn. Another provision in the Senate bill would enact a new reporting requirement for tax-exempt bond interest, similar to IRS Form 1099. The current language calls for the reporting to be completed by the broker or bank custodian community, as is currently done with taxable instruments.

GFOA and other state and local governments continue to press for withdrawal of these two provisions, as they will would likely increase bond issuance costs, especially for smaller issuers, and they represent significant policy shifts in the administration of tax-exempt bonds. CDFA members are encouraged to visit http://www.BuiltByBonds.org to learn more about these issues and to use the letter template and direct email access to your Senators and House Representatives.
Source: Susan Gaffney, Government Finance Officers Association

What to Expect in the Coming Months

The CDFA legislative team will continue to monitor the tax reconciliation process on Capitol Hill. CDFA will begin its grassroots efforts to lobby Congress as soon as the House and Senate announce conferees to a working conference committee. To help keep our members informed of the process we will continue to update the legislative website with new developments as they unfold.

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January 2006
CDFA's legislative efforts paid off in 2005, as the Council was again successful in getting two items introduced in the United States Congress. The Legislative Committee, led by CDFA Board Member Bob Lind from the City of Minneapolis Department of Community Planning & Economic Development, finalized the Council's legislative agenda in early 2005 and quickly disseminated this report throughout Capitol Hill. The legislative agenda was previewed in the April 1 edition of The Bond Buyer as well.

In mid June, CDFA's lobbyist, John McMickle, was able to persuade Congressman Phil English (R-PA), member of the House Ways and Means Committee, to introduce the Bond Financing Renewal Act of 2005 in the House of Representatives. This important legislation (H.R. 2941) specifically addressed CDFA's 2005 legislative agenda by accelerating the capital expenditure increase date up to 2006, from the recently approved increase to take affect in 2009. As you may recall, in 2004 CDFA was successful in getting the capital expenditure limitation for the use of IDBs increased from $10 to $20 million effective in 2009. At the time, CDFA had expected the effective date for this legislative item to be immediate. The measure also proposed the removal of certain restrictions, which would allow Industrial Development Bonds (IDBs) to achieve bank-qualified status. CDFA immediately launched a massive grassroots lobbying effort and ultimately contacted over 250 House offices seeking support for the bill. Unfortunately, the pressing demands of the nation have caused the bill to stall in the House Ways and Means Committee where it is currently pending.

On a brighter note, CDFA was successful in passing a separate bill through the United States Senate in mid November that directly addresses the Council's legislative agenda. With the help of CDFA member Ben Avery with the Wyoming Business Council and lobbyist John McMickle, CDFA was able to partner with Senator Craig Thomas (WY) to pass an amendment in the Senate tax cut reconciliation bill which will advance the capital expenditure increase date for the use of IDBs from September 30, 2009 to December 31, 2006. The amendment was passed by the full Senate but was not included in the House reconciliation bill. The two sides are expected to go to conference on the bill in early 2006 and CDFA will monitor the situation closely throughout the legislative process.

The true success of CDFA's legislative efforts lies with all of those who wrote letters and made contact with Congressional offices during the past year. This year, CDFA has contacted and, more importantly, educated more of our nation's leaders than ever before. With assistance from Elia Cholakis, CDFA's former legislative intern, and the entire Legislative Committee, the Council has laid a strong foundation for future legislative advancements in Washington, DC. Additionally, CDFA was mentioned in The Bond Buyer nine times in 2005 in reference to these and other legislative issues.

CDFA will bring on a new legislative intern in 2006 to help continue these positive grassroots legislative activities. Jose Beltran, a fifth year senior at Case Western Reserve University in Cleveland, Ohio will start at CDFA in late January. Jose has a keen interest in economic development finance and the legislative process. CDFA members can expect Jose to be in contact during the year seeking support and assistance on numerous legislative efforts.