CDFA Legislative Front
October 2008
Rescue Bill Dominates Capitol Hill
-Significant Development Finance Items Included in Final Version-
The legislative agenda has been dominated by a handful of large bills this year, and last month was no exception as the financial rescue package consumed the majority of the time in Washington, D.C. Several provisions in the rescue bill are of note to the development finance industry.
How much this Congress will be able to accomplish moving forward is unclear. With the upcoming Presidential and Congressional elections, it will be hard to get new legislation through Congress and signed into law. Congress will have to act on several budget and smaller tax bills since all of the appropriations bills for next year have not been passed and expiring tax provisions need to be addressed.
$700 Billion Rescue Package Passes with Green, AMT, NMTC Provisions
The “Emergency Economic Stabilization Act of 2008” was the major issue and legislation last month. After initially being rejected in the House, a revamped version of the bill was passed by both the House and Senate and signed into law by President Bush. The bill would allow the Treasury to buy struggling securities from U.S. banks. It is hoped the move will improve confidence in the market and halt the slowing of the credit market in recent weeks.
Several green and alternative energy items were included. The bill authorizes $800 million in new clean renewable energy bonds (CREBs). CREBs are tax-credit bonds in which interest on the bonds is paid in the form of federal tax credits by the U.S. government in lieu of interest paid by the issuer. CREBs, therefore, provide qualified issuers/qualified borrowers with the ability to borrow at a 0% interest rate. An additional $800 million in qualified energy conservation bonds, a new category of tax-credit bonds, is also authorized in the bill.
Total new or renewed green energy tax incentives total more than $18 billion.
The expensing of Brownfield remediation costs was also extended until December 31, 2009. The expensing provision had expired at the end of 2007, which means the change applies to eligible expenses and projects from 2008 and 2009.
The rescue package provided the vehicle for the Senate and House to agree on an alternative-minimum tax (AMT) patch. The AMT, which applies to the interest earned on private-activity bonds, 501(c)(3) bonds and other governmental bonds, was created to prevent high-income households from paying little or no taxes. However, the AMT is not indexed to inflation and more middle-class Americans become subject to the AMT each year unless Congress passes a patch. The increase in the AMT exemption amounts to $46,200 for individuals and $69,950 for married couples filing jointly for 2008.
Also reauthorized in the bill is the New Markets Tax Credits (NMTC) Program through 2009. New tax credit allocation was authorized in the amount $3.5 billion. The goal of the program is to spur revitalization efforts of low-income and impoverished communities. The NMTC Program provides tax credit incentives to investors for investing in communities that are economically distressed or have low-income populations.
In addition, the bill creates new private-activity bonds (PABs) not subject to the volume cap. Gulf Opportunity Zone bonds for seven counties in Texas and Louisiana were created to aid in the recovery from Hurricane Ike. Up to $2.3 billion in bonds may be issued under this legislation. Midwestern Disaster Area bonds were also authorized. These PABs are also not subject to the volume cap and may be issued in seven Midwestern states in areas that have federally recognized disaster areas.
CDFA Writing Administration Transition Paper
In preparation for the upcoming presidential election, the CDFA Legislative Committee continues work on an Administration Transition Paper. The paper will offer a brief summary of the state of the development finance industry, the role of the federal government, and recommended policy considerations on a wide variety of topics concerning development finance.
Once completed and approved, the CDFA Administration Transition Paper will be sent to each of the candidate’s campaigns and key congressional offices on Capitol Hill. The document will also be sent for consideration to the appropriate members of the president-elect’s transition team after the election.
The Administration Transition Paper will feature CDFA's legislative agenda and other issues important to the development finance industry.
>>>READ MORE ABOUT CDFA'S LEGISLATIVE AGENDA
Legislation in Senate Introduced To Improve Bank Deductibility
Senators Jeff Bingaman, NM, and Mike Crapo, ID, both members of the Senate Finance Committee, introduced a bill last month that ease restrictions on the ability of banks to purchase municipal bonds and, they hope, increase demand for them.
The bill, which mirrors legislation introduced in the House by Representative Barney Frank, MA, allows bank to deduct 80% of the cost of buying and carrying tax-exempt bonds from government authorities whose annual issuance is less than $30 million. The current limit is $10 million, and the new limit is pegged to inflation moving forward.
The bill also extends the “de minimis” provision to banks to allow them to invest up 2% of their assets in municipal debt. Non-financial companies already benefit from this provision.
IRS Issues Guidance on Housing Bill
-Notice Clarifies New Volume Cap and FHLB Letters of Credit-
The Internal Revenue Service issued guidance on provisions in July’s housing bill that created new housing specific volume cap for 2008. There had been some debate over how the $11 billion in new cap space was going to be divided amongst the states. The IRS clarified that $11 billion would be divided between all states and territories. Initial calculations didn’t include overseas territories.
>>>VIEW NEW STATE-BY-STATE BREAKDOWN OF 2008 VOLUME CAP
The IRS also addressed an issue that had arisen concerning the provision in the bill that allows Federal Home Loan Banks (FHLBs) to issue stand-by letters of credit (LOC) on all tax-exempt bonds, including industrial development bonds. Language in the new legislation referred to the FHLB guarantees being applicable with “original issuance.” The IRS has ruled that both new money and refundings are eligible for FHLB LOCs during the current authorization (July 30, 2008-December 31, 2010).
>>>READ THE IRS NOTICE
FHLB and CDFA Promote Use of New Legislation
FHLB Pittsburgh and CDFA have been the leaders in educating and promoting the new letter of credit capability of the FHLBs. Craig Howie, Group Director of Member Services for FHLB Pittsburgh, spoke at CDFA’s Development Bond Finance Course on September 18 in Washington, D.C. Local issuers have been anxious to learn how to utilize FHLB LOCs through their local banks as the demand for letters of credit have skyrocketed over the last calendar year.
Larry Bossolt, Executive Director of the Erie County Industrial Development Authority, also represented CDFA at a recent media event with Rep. Phil English in Erie, PA in conjunction with FHLB officials earlier in the month. Rep. English has been supportive of tax-exempt bonds and CDFA legislative initiatives in the past.
FHLB and CDFA will continue to work together to educate the development finance industry about this new credit enhancement tool.
Continuing Resolution Provides Funding for CDBGs
A recently passed continuing resolution that funds the federal government at current levels for the next five months also included bond-related items.
The resolution continues funding for bond-related community development block grants (CDBGs) at current levels and $6.5 billion in new grants for states that are recovering from federally declared natural disasters.
Second Stimulus Package Stalls
An introduced second stimulus package has stalled in the Senate and was overshadowed by the fiscal crisis in the markets. The bill was designed to help create jobs by investing in infrastructure.
The bill has passed the House but is short of the 60 votes needed in the Senate to invoke cloture and avoid a filibuster. The multi-billion dollar bill focuses on funding for highways, airports and clear/drinking water revolving loan funds.
Additional attempts at economic stimulus packages are expected but passage of such a package may not happen until the next Congress convenes in January.