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. For 2006 reports, click here.

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December 2007

After the success of CDFA’s Capitol Hill Day in November, the Council continues to move forward with a new proposed definition of manufacturing for industrial development bonds (IDBs).

CDFA’s proposed change allows the use of IDBs by new economy industries, such as software manufacturing and biotech. The current definition of manufacturing is based upon 1970s and 1980s legislation and limits the ability of municipal and regional to finance deals for more technologically advanced industries.

With 12 appropriations bills waiting to be passed and signed into law, the budget and spending levels have dominated talk in Congress. Congress will also have several expiring tax code provisions in the next calendar, which could provide the vehicle needed for CDFA’s legislation.

CDFA’s legislative counsel John McMickle is optimistic that the language will be introduced in the near future. Once the bill is introduced, CDFA’s grassroots lobbying efforts will be essential in creating support in both the House and Senate. CDFA efforts have already been concentrated on creating contacts in the House Ways and Means Committee and Senate Finance Committee.

To learn more about the proposed definitional change check out CDFA's main legislative webpage.

CDFA is actively seeking sponsors and authors for this legislation. CDFA will need the help of members in contacting their representatives in both the House and the Senate. Those interested in helping support this measure should contact Brian Anderson.

CDFA's main legislative webpage offers complete coverage of the Council’s legislative efforts.

FHLB legislation gaining momentum

Legislation allowing Federal Home Loan Banks to offer letters of credit on industrial development and 501(1)(3) bonds transactions continues to move forward. H.R. 2091 and S. 1963 have continued to add sponsors. The bills’ supporters are hopeful to find an appropriate tax bill to add it in the future.

FHLBank Pittsburgh is still actively seeking out sponsors, especially on House Ways and Means. While CDFA has signed on to support the legislation, FHLB is asking if any CDFA members or other interested parties would be willing to have their organization listed formally as on that is supporting the legislation. Interested parties should contact FHLBank directly.

House approves one-year patch of AMT

The House has approved an $81 billion tax package that includes provisions to prevent the alternative minimum tax from applying to an additional 23 million taxpayers. The bill also extends the qualified zone academy bond program for one year.

The AMT, which applies to interest on private-activity, some governmental and 501(1)(3) bonds, is designed to target high-income households. However, the AMT is not indexed to inflation. The result is that more and more taxpayers are subject to it each.

The bill is expected to face opposition in the Senate and a possible veto if it makes it to the White House. While both Democrats and Republicans agree that the AMT needs to be overhauled or eliminated, Republicans have problems with the revenue raisers Democrats are proposing to replace the estimated $50 billion lost over 10 years. One such provision would require hedge fund, private equity, and other investment managers pay taxes at ordinary tax rates instead of the lower capital gains rate.

Congress Sends Whitehouse Defense Bill with Continuing Resloution

The House and Senate both approved a $471 billion defense spending bill that includes a continuing resolution to fund government programs through December 14.

The bill, later signed into law, is the first of the 12 annual appropriation bills to be enacted into law.

The White House is threatening vetoes on many of the other bills because they exceed the recommended discretionary spending levels put forth by the administration. The current stopgap legislation was set to expire on November 16..

Transportation Bill set to pass

The Senate and House are both expected to pass a $105 billion compromise transportation bill. However, the threat of veto looms over this and virtually all of the 12 appropriations bills.

The bill provides $40 billion for highway construction, $16.4 billion for Section 8 tenant-based vouchers, and $9.65 billion for public transit. Overall, the bill is more than $5 billion over the recommended figure given by the White House.

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October/November 2007

CDFA recently completed its 2007 Capitol Hill Day on November 2. CDFA members and staff had meetings at the Congressional offices of Representatives from California, New York, Michigan, Illinois, Minnesota and Pennsylvania. CDFA’s legislative agenda was positively received on the Hill. John McMickle of Winston & Strawn and CDFA staff are pushing to get CDFA’s proposed legislation expanding the definition of manufacturing for IDBs introduced into the House and Senate.

Once the legislation is introduced, CDFA will be working to garner cosponsors and support for the expansion of this development finance tool. A report summarizing Capitol Hill Day and the new legislation CDFA is proposing will be available shortly on the CDFA website.

FHLB Letters of Credit Legislation

HR 2091 and S 1963 also received positive feedback during the congressional office visits. The bills continue to gain cosponsors as a broad coalition continues its grassroots campaign. These bills would allow FHLB member banks to issue letters of credit on a variety of private activity bonds, including IDBs.

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September 2007

Activity will be picking up in Washington as Congress returns from their summer recess. CDFA’s focus remains on changing the working definition of manufacturing as it applies to industrial development bonds. Expanding the definition of manufacturing would allow IDBs to be used to develop new technology manufacturing such as biotech and other fields. The use of IDBs for new economy manufacturing would provide economic development officials with expanded resources to promote job growth. CDFA staff members and lobbyist John McMickle will continue to push this priority during the fall session. Learn more about the definitional issue on CDFA's website.

Federal Home Loan Bank IDB Letter of Credit Legislation Moving Forward

Besides ongoing efforts by to get the definition of manufacturing revised as it pertains to industrial development bonds, CDFA is also supporting legislation allowing Federal Home Loan Banks to credit enhance bond issuers.

Under H.R. 2091 and S. 1963, FHLBanks would be permitted to offer letters of credit (LOCs) on IDBs. This would lower the cost of issuing IDBs and make this important economic development tool even more attractive. The legislation would also open up the tax-exempt market for municipalities who might not have had access to this development financing tool otherwise. The bills are currently in committee in both houses and waiting to be scored by the GAO. FHLBank letters of credit could be used to help secure a variety of projects within the private activity bond industry. CDFA is also seeking support for this legislation and is asking that interested stakeholders contact their respective House and Senate leadership to request co-sponsorship of the bills.

Information on how to support and learn more about this critical legislation can be found on CDFA's main legislative webpage.

Small Business and Non-Profit Access to Bonds

CDFA continues to work with other national leaders to improve the regulations relating to the bank-qualified limitations to IDBs. Legislative staff has recently discussed partnering opportunities with two national associations involved heavily in this issue. More movement is expected in the coming months.

Bridge Trust Fund Proposed

In the light of the Interstate 35W collapse in Minnesota, Rep. James L. Oberstar, D-Minn., unveiled legislation on August 8 that would create a dedicated trust fund to help repair, replace, and maintain the countries 74,000 bridges that have been rated “structurally deficient” by the Department of Transportation.

As currently written, the trust fund would operate in much the same way of the current highway fund. Funds would be collected via the gasoline tax and other transportation fees. The pooled funds would then be distributed to the states based on a formula.

Often times, the money from the highway trust fund is used to repay tax-exempt bonds issued to finance transportation projects. Bonds issued in this way are called Garvees (grant anticipation revenue vehicles). It is anticipated that funds from the bridge trust fund could be used the same way. Other financing options that could be associated with the new fund also include private activity bonds and public-private partnerships.

While it is acknowledged that the nation needs a new infrastructure plan, Oberstar’s legislation faces on uphill battle. It would be funded by an additional gasoline tax or tax on each barrel of gasoline imported into the country. The plan is also being criticized for being too narrow as congressmen look for a transportation plan that is not limited to just bridge repair and replacement.

There is opposition from both the White House Administration and Rep. John Mica (R-Fla.) the ranking member of the House Transportation and Infrastructure Committee.
Oberstar’s legislation comes one week after Sen. Christopher J. Dodd, D-Conn., and Sen. Chuck Hagel, R-Neb., proposed legislation that would create a national infrastructure bank. The bank would be authorized to have up to $60 billion in outstanding bonds issued to state transportation and other public authorities. The Dodd-Hagel Bill would apply to the nation’s entire transportation system and also includes measures for grants and loan guarantees.

NABL and GFOA Complete the Tax Compliance Checklist – Post Issuance

The National Association of Bond Lawyers and Government Finance Officers Association have co-developed the Tax Compliance Checklist – Post Issuance. The checklist is designed to help assist bond counsel in discussing with issuers and conduit borrowers post issuance compliance matters. On August 16, NABL/GFOA released the checklist and submitted it to the Department of the Treasury and Internal Revenue Service.

The NABL/GFOA partnership has also previously released tax compliance checklists for government bonds for both capital projects and 501(c)(3)s. Copies for both the new report and past reports can be found on NABL's website.

Rep. Fossella Supports Muni Regulation Reform

New York Republican Vito Fossella is the first member of Congress to publicly support SEC Chairman Christopher Cox’s proposed municipal market initiatives. Fossella wants disclosure requirements that more closely resemble those required in the corporate market. Despite his support for Cox’s reforms and his offers to help draft the legislation, Fossella does not sit on a committee that oversees securities.

Most municipal issuer groups believe the current system works and plan to block efforts to grant the SEC additional regulatory power over the municipal market. The National Association of State Auditors, Comptrollers and Treasurers was among the first organizations to oppose legislative change to municipal market regulation in a letter to Cox. NASACT believes large scale changes to the current system are not necessary, and that some improvements could be made to municipal market disclosure and accounting without legislation.

Capitol Hill Day – Coming in November

CDFA’s Board of Directors will hold its fall meeting on Thursday, November 1, 2007 in Washington, D.C. This meeting will coincide with the Council’s first ever, two-day TIF training course on November 1-2. To take advantage of this opportunity, the Legislative Committee is planning a Capitol Hill Day for November 2nd following the Board meeting. As part of the preparation for the Capital Hill Day, the committee and staff will be updating the “talking points” on the Council’s legislative agenda items. More information concerning the hill day will be coming soon.

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August 2007

Although the late summer may be a slow time on Capital Hill with both chambers preparing for summer recess, there have been several major development finance proposals in the news. From infrastructure bond banks to disclosure reform, Capitol Hill has been actively addressing the bond industry. CDFA also continues to move forward on its legislative agenda.

Dodd/Hagel Bill Would Create National Infrastructure Bank

Legislation was recently proposed by Senate Banking Committee chairperson Senator Christopher J. Dodd, D-Conn., to create a national infrastructure bank The bank would be authorized to issue bonds to state departments of transportation and other public authorities for the building of new, or upgrading of existing, roads, bridges, mass transit networks, and drinking and wastewater systems. As the bill is currently written (cosponsored by Senator Chuck Hagel, R-Neb), the bank would be allowed to have up to $60 billion in bonds outstanding at any given time.

The measure also provides for loan guarantees and grants for infrastructure projects. The amount of money available for grants was not specified. The bank will be required to report directly to Congress on its economic viability and transparency of existing financing methods. In five years time, the General Accountability Office would evaluate the bank and its programs.

In the wake of the Interstate 35 West tragedy in Minnesota and revelations concerning the safety and maintenance of bridges across the nation, the Dodd/Hagel Bill would fill a clear need in the maintenance of the country’s infrastructure.

Cox proposes changes in disclosure and accounting rules for municipal market

Securities and Exchange Commission chairman Christopher Cox went before the Senate Banking Committee to discuss his proposed changes to municipal bond rules. He argues that municipal securities should be held to a higher standard of disclosure. Although, he acknowledges that corporate regulations are also not practical for the municipal market. Cox’s proposal would also improve “consistency and clarity” in accounting standards.

Although Cox has stated the proposal would have bipartisan support, it appears the Senate Banking Committee is in no rush to move on it. Both Senator Dodd and Senator Richard Shelby, R-Ala., the committee’s ranking Republican, have declined comment on the proposal while they take time to study it.

Some municipal issuer groups believe the current system works and plan to block efforts to grant the SEC additional regulatory power over the municipal market.

Paulson asks Congress to raise $8.965 debt ceiling

With the U.S. Treasury quickly approaching its debt ceiling, Treasury Secretary Henry Paulson has asked Congress to raise the ceiling as soon as possible. Without an increase, the Treasury Department would be forced to take measures to stay under the ceiling, which would create uncertainty in financial markets. One of the first measures usually taken is to suspend the sale of State and Local Government Series securities. This has been a disruptive event to the municipal market in the past.

CDFA Legislative Update

Work continues to move forward with CDFA’s effort to change the working definition of manufacturers in regards to usage of IDBs. CDFA lobbyist John McMickle continues to develop the proposal and schedule meetings with congressional representatives. The goal remains to get the proposal scored by the Joint Tax Committee so as to introduce the measure sometime in the fall when Congress resumes after the summer recess.

The proposed change would make the definition of manufacturer more inline with the current economy. The new definition would include biotechnology and software manufacturing among other non-traditional manufacturers. This change would open up the usage of IDBs for many more firms and industries.

Discussion of the Alternative Minimum Tax on IDBs has also taken place. CDFA's desire is that IDBs not be subject to the AMT. The current system makes interest from IDBs tax-exempt for traditional taxpayers, but the interest is included in the calculation of the AMT, which more and more Americans are qualifying for.

Capitol Hill Day – Coming in November

CDFA’s Board of Directors will hold its fall meeting on Thursday, November 1, 2007 in Washington, D.C. This meeting will coincide with the Council’s first ever, two-day TIF training course on November 1-2. To take advantage of this opportunity, the Legislative Committee is planning a Capitol Hill Day for November 1st prior to the Board meeting. More information concerning the hill day will be coming soon.

As part of the preparation for the Capital Hill Day, the committee and staff will be updating the “talking points” on the Council’s legislative agenda items. This information will be distributed to all members prior to the visits and placed online for easy access

CDFA Adds Research and Policy Associate

Brian Anderson has joined CDFA as a research and policy associate. He will be working with CDFA lobbyist John McMickle and the legislative committee in regards to CDFA’s legislative activities. He will also be updating the talking points on individual policy items.

Anderson is a recent graduate of Cleveland State University’s Levin College of Urban Affairs with a Master of Public Administration. He also holds a Bachelor of Arts from Cleveland State in Sociology. Before joining CDFA, he worked as a journalist with the News-Herald and the Morning Journal, daily newspapers in Northeast Ohio.

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July 2007

The legislative action is heating up on Capitol Hill with both chambers pushing agendas that will directly impact the development finance community. In addition, early figures show that 2007 will be a record year for bond issuances nationally. The following is a short report on CDFA’s current legislative efforts and the state of the industry midway though the year.

Bond Volume Up 41%, IDB Surging

According to a July 2, 2007 report by The Bond Buyer, total municipal bond volume is up 41% over last year. An increased interest rate spread between taxable and tax-exempt issuances has driven the use of municipal bonds and in particular IDBs. According to the report, economic development revenue bonds (IDBs primarily) are up 96% over last year at this time. The increase in the capital expenditure limitation from $10 million to $20 million has helped fuel this demand. Many states have already run dry of volume cap allocation for IDBS with dozens more very near their limits. This trend is expected to continue throughout the year making 2007 one of the largest IDB issuance years in decades.

CDFA Lobbyist Readies Definitional Change Measure, Bank Qualified Effort Moves Forward

CDFA lobbyist John McMickle has been spending time with Capitol Hill leaders and office staffers to promote the Council’s efforts to update the definition of manufactures for the purpose of IDBs. CDFA desires a definition that is more inline with current manufacturing industry that would allow for the financing of biotechnology and software manufacturing among other non-traditional manufacturers. CDFA is spending July working with Congressional leaders to present options for updating the definition. CDFA’s goal is to get a provision scored by the Joint Tax Committee in hopes of introducing the measure this fall in a moving tax bill.

Efforts to advance the limitation on non-bank qualified bonds are moving forward. CDFA has been circulating proposed changes to the laws that govern bank qualified status of industrial development and 501(C) 3 bonds to various leaders in hopes of getting legislation introduced this year. Support for CDFA’s proposed changes is very strong but it will take a major coalition effort to ensure passage.

The Legislative Committee will be exploring the potential for using IDBs on renewable energy projects. The CDFA Board has asked the committee to review this possibility and begin to build a strategy for encouraging new laws that allow IDBs to be eligible for financing these projects.

Capitol Hill Day – Coming in November

CDFA’s Board of Directors will hold its fall meeting on Thursday, November 1, 2007 in Washington, D.C. This meeting will coincide with the Council’s first ever, two-day TIF training course on November 1-2. To take advantage of this opportunity, the Legislative Committee is planning a Capitol Hill Day for November 1st prior to the Board meeting. More information concerning the hill day will be coming soon.

As part of the preparation for the Capital Hill Day, the committee and staff will be updating the “talking points” on the Council’s legislative agenda items. This information will be distributed to all members prior to the visits and placed online for easy access.

NABL Submits Comments on PILOTs

On June 28th, the National Association of Bond Lawyers (NABL) submitted comments to the Department of the Treasury and the IRS in response to the Notice of Proposed Rulemaking in the Federal Register on October 19, 2006 (REG-136806-06), relating to payments in lieu of taxes (PILOTs). The PILOTs comment letter, cover letter, list of the task force members, and press release can be found on the NABL web at http://www.nabl.org/AM/TemplateRedirect.cfm?template=/CM/ContentDisplay.cfm&ContentID=7104

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June 2007

The New Markets Tax Credit Extension Act of 2007 (S. 1239 and H.R. 2075) would extend the New Markets Tax Credit through 2013 and generate more than $17 billion in new private investment in poor urban and rural communities across the country. CDFA has joined the effort to support this important extension.
>>>READ LETTER

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May 2007

Spring is an exciting and busy time of year for everyone. Life in the development finance industry is no different. CDFA is continuing to push legislative agenda forward and strengthen the efforts of state and local development finance agencies. The House and the Senate returned from recess busier than ever, signifying movement on Capitol Hill. The following is CDFA’s monthly legislative update.

FHLB Offers Credit Enhancement Proposal
Experts and panelist members from the American Enterprise Institute (AEI) and the Association of Financial Guaranty Insurers (AFGI) participated in a discussion of economic development bonds. Opinions vary over the proposal to allow the 12 Federal Home Loan Banks (FHLB) to provide credit enhancement to issuers of tax-exempt economic development bonds. The proposal also aims to provide access to capital for small issuers in “underserved markets.”

If the FHLB system were elevated to a government-sponsored enterprise, then it would be permitted to issue letters of credit in support of tax-exempt bonds, like Fannie Mae and Freddie Mac (Ackerman 2007). The proposed Congressional change will support the use of small industrial development bonds (IDBs) and promote transactions involving small non-profit health care facilities, colleges, and universities. CDFA will continue to monitor this effort as it moves forward. (Source: The Bond Buyer, 12 April)

R&D Tax Credits
The United States has been unable to keep up with the pace of economic competition in the global market economy. Research and Development (R&D) tax incentives are continuing to drive innovation, competition, and prosperity where sound strategies based on economic development are leading to the emergence of new competitors in other parts of the world including Southeast Asia and Europe (Atkinson 2007). Improving education and increasing the amount of funding available for research are among the main areas to address in order for policy changes to take affect in the United States. New proposed recommendations and policy play an important role in stimulating economic growth and in helping rediscovering America’s competitiveness. (Source: The International Technology and Innovation Foundation. Dr. Atkinson, R., April 2007. “Expanding the R&D tax credit…”)

Capitol Hill
H.R. 1677, Taxpayer Protection Act of 2007
Chairman Charles B. Rangel (D-NY) and Oversight Subcommittee Chairman John Lewis (D-GA) passed legislation in the House Committee that gained bipartisan support for its provisions to improve communication between the IRS and taxpayers. The bill will protect taxpayers from fraudulent and predatory behavior, tax fraud and identity theft. It also strengthens the outreach program on Earned Income Tax Credit (EITC). (Source: House Committee Ways & Means press release, 28 March 2007)

Small Business Tax Relief Provisions
H.R. 1591 – U.S. Troops Readiness, Veterans’ Health, and Iraq Accountability Act of 2007
Senate Chairman Max Baucus (D-MT) and House Chairman Charles B Rangel (D-NY) agreed on a package of small business incentives for inclusion in the supplemental spending bill. The bill prepares for a long-overdue increase in minimum wage and provides meaningful tax relief to small businesses. The package enables businesses to continue hiring new employees and promote economic growth in communities. It also extends WOTC, enhances GO Zone low-income housing, helps GO Zone repairs and reconstructing, and simplifies the Family Business Tax. (Source: Senate Committee on Finance news release, 26 April 2007). The President is expected to veto the bill.

H.R. 1332, Small Business Lending Improvements Act of 2007
Proposed legislation from Congressional Democrats would lower the cost of financing and create four new loans. The new programs would concentrate on rural, community, and the small business lending needs of Veterans and medical services. The innovative bill was passed by the House, but may face opposition over reducing lender and borrower fees associated with contributions in the SBA 7(a) program. The 7(a) is a business start-up loan program. (Source; The Public Forum Institute, 30 April 2007)

National Association of Bond Lawyers (NABL)
In late April, NABL submitted to the U.S. Treasury Department administrative guidance recommendations in regards to technical comments relating to qualified hedge provisions applicable to tax-exempt bonds (www.nabl.org). Currently, the practical application is restrictive and a very involved process. Clarification is needed where there is a lack of guidance. NABL is addressing existing regulations, particularly the “primary purpose” rule (McConnell 2007). It stipulates that hedges, caps, contracts, and or options be entered to modify the issuer’s risk of interest rate changes for a bond. New rules would also allow caps with upfront premiums to act as qualified hedges.

NABL is interested in clarifying and facilitating compliance with tax law and regulations. They promote the integrity of the municipal market by advancing the understanding of and compliance with the law affecting public finance. (Source: www.nabl.org press release 4/24/07 & The Bond Buyer, 26 April)

Legislative Efforts
CDFA recently drafted two proposals that would make legislative changes regarding “Bank Qualified” bonds. The changes attempt to update the process, expand definitions, and ease limitations to allow economic developers more access to cost effective finance mechanisms to attract and retain businesses. A committee of CDFA members, colleagues, and interested parties is scheduled to convene in early May to discuss strategy on issues associated with “Bank Qualified” items.

Anxious to continue pressing our legislative agenda and priorities, CDFA is excited about its mutual partnership with the National Association of Bond Lawyers (NABL). CDFA is using NABL as a technical advisor or effort to expand the definition of manufacturing for purposes of industrial development bonds. A meeting between the task force is scheduled for early May.

Insight with John McMickle
There is much anticipation over the Presidential veto of the Small Business Tax Relief Provisions bill, H.R. 1591. It is expected to take place during the first few days of May. The current tax provisions do not include any Republican input. After the veto, the bill is expected to pass in the next couple of weeks with both sides compromising. A substantial amount of build up has developed over the subject since January. This will free up room to concentrate on other issues that include energy related issues, tax incentives, and clean technology.

The Bond Buyer
This month featured many interesting articles including several that involved CDFA’s staff, members, and upcoming events. Please check out some of the following articles:

“Fannie Mae to Buy Tax-Exempts after a Two-Year Suspension”
Monday, April 2, 2007 by Andrew Ackerman

“Michigan to start School Loan Revolving Fund”
Monday, April 9, 2007 by Yvette Shields

“Florida would allow Conservation TIFs”
Tuesday, April 10, 2007 by Shelly Sigo

“New Orleans’ uneven recovery shown by Two Credit Upgrades”
Thursday, April 12, 2007 by Tedra DeSue

“Illinois Finance Agency gives initial approval to $1 Billion of Offerings”
Thursday, April 12, 2007 by Yvette Shields

“Democrats eye flatter tax, eliminate AMT”
Tuesday, April 17, 2007 by Alison McConnell

“Washington ballot question won’t ease School Bond rules”
Friday, April 20, 2007 by Jackie Cohen

“Louisiana OKs $1B GO Zones”
Friday, April 20, 2007 by Tedra DeSue

“Fitch: Subprime problems could spill over to local economies.”
Thursday, April 26th, 2007 by Andrew Ackerman

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April 2007

The closing of the month of March and the arrival of April signifies the end of the first quarter in 2007. The House and the Senate are finished selecting committees and busy settling into their routines of hearings, testimony and committee votes. Last month, the Senate and House were busy with improvements to cumbersome AMT laws while the House also address redevelopment needs. The following is the monthly development finance legislative report from Capitol Hill.

Ways & Means approves Katrina Housing Redevelopment Bill
Under the leadership of Chairman Charles B. Rangel (D-NY) and Ranking Republican Jim McCrery (R-LA) the House Ways & Means Committee, approved the “Katrina Housing Tax Relief Act of 2007.” The bill makes substantial changes to the eligibility requirements for low-income housing tax-credits and tax-exempt mortgage revenue bonds. The legislation strengthens existing tax incentives and increases the number of homeowners who benefit from tax-exempt bonds issued by local government for renovations and refinancing residential mortgage loans.

AMT Provisions in House Budget Resolution
The House Ways & Means Subcommittee on Select Revenue Measures has been holding hearings on the alternative minimum tax (AMT). Current debate centers on choosing an AMT relief package designed for either long-term reform or short-term relief. The House Budget Resolution gives the subcommittee greater flexibility in designing AMT relief, but every year the number of taxpayers continues to increase with more than 23 million affected by AMT in 2007. That number is expected to rise to 24 million in 2008 and 26 million in 2009. Subcommittee Chairman Richard Neal (R-MA.) favors a permanent solution rather than a one-year patch.

On Friday, March 23, 2007 the Senate approved a FY08 budget resolution with a two-year patch for the alternative minimum tax (AMT). The House plan contains a “deficit neutral reserve fund.” The AMT applies to interest earned on tax-exempt private activity bonds held by individuals and corporations. The cost of AMT reform is estimated to be very high, hence the repeated one year fixes.

President Bush’s budget proposed repealing the private-activity bond volume cap for water and sewage facility bonds and extending the qualified zone academy bond program. The House’s budget resolution contains a two-year tax-credit bond program for school construction and improvement. The provision is similar to current House Ways & Means Chairman Charles Rangel (D-NY) “America’s Better Classroom Act” of 2005. The House budget would also extend optional deduction for state and local sales tax.

CDFA remains active in the efforts to eliminate or reduce AMT on IDBs and will continue ot monitor this issue.

Joint Committee on Taxation for 110th Congress Selected
The Joint Committee on Taxation (JCT) is a bi-partisan, select committee that advises Congress on the systems and methods of internal revenue laws. The committee and staff foster a closer understanding of problems confronting both taxpayer and the Internal Revenue Service (IRS). Congressman Charles B. Rangel (D-NY) was appointed Chairman and Senator Max Baucus (D-MT) was appointed Vice Chairman. The committee consists of Democratic and Republican members of the House Committee on Ways & Means and the Senate Finance Committee including Pete Stark (D-CA), Sander Levin (D-MI), Jim McCrery (R-LA), Wally Herger (R-CA), John D. Rockefeller (D-WV), Kent Conrad (D-ND), Chuck Grassley (R-IA), and Orrin Hatch (R-UT).

Federal Angel Credits Gaining Traction
Congressmen Earl Pomeroy (D-ND) and Donald Manzullo (R-IL) reintroduced legislation to provide federal tax credits for qualified angel investments in small businesses. The bill, called the Access to Capital for Entrepreneurs (ACE) Act of 2007 (HR 578) would create a 25% tax credit for qualified individuals and partnerships that invest $250,000 in a qualified small business. Advocates site the bill will help stimulate angel investing and create new sources of financing for start-ups and early stage companies.

Insight from John McMickle
The tax world is gaining quite a bit of attention regarding the two-year AMT patch. In general, there has not been much movement on substance in Washington. The House and Senate are both keeping a watchful eye on a possible vehicle to use in resolving issues, especially the minimum wage tax package. The Iraqi War Bill looks like a possible vehicle.

The beginning of the month of April marks the spring recess period on Capitol Hill. The House has a one-week recess and the Senate will break for two weeks. When Congress reconvenes, negotiations to resolve minimum wage are expected to continue. There are currently two schools of thinking. The first is the House and Senate will fall out and the second is leadership will force a deal. Nobody is sure which way the ball will bounce. The senior members are dug in deep and nobody wants to be the first to compromise.

The House and the Senate have both passed their budgets for FY08. The real question will be, how much tax legislation will there be? Democrats appear to be in a “no tax mode,” while Republicans continue to push for tax breaks.

CDFA Legislative Efforts Update
NABL is hard at work putting together their first draft response to CDFA’s request for technical advice for amending the definition for manufacturing. The review process with their designated team is currently under way. CDFA is anxiously anticipating NABL’s response in the upcoming weeks. CDFA is looking forward to amending the definition, successfully improving the use of IDBs and passing yet another CDFA legislative priority.

The Bond Buyer
Don’t forget to keep up with current events, transactions, and news of the bond industry. Here are a few possible articles of interest in the Bond Buyer this past month:

“House Panel: Alternative Minimum Tax repeal must be priority in 2007”
Thursday, March 8, 2007 by Alison L. McConnell

“Hurricane Housing Help”
Thursday, March 22, 2007 by Alison McConnell

“Mass. Finance doles out Multifamily Housing Funds”
Thursday, March 22, 2007 by Michelle Kaske

“Senate OKs Budget with Two-Year AMT Patch”
Tuesday, March 27, 2007 by Alison McConnell

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March 2007

The month of February is not only the shortest month of the year it is also one of the busiest. There is much to take notice of besides keeping focused on CDFA’s priorities and agenda. The 2008 Fiscal Year Budget was recently unveiled by the Bush administration. The 110th Congress has announced its committee and subcommittee members and has also begun addressing issues for the upcoming year. CDFA’s staff and members have also been busy. The following is the monthly CDFA legislation update.

Fiscal Year 2008 Budget
President Bush announced the proposed FY 2008 Budget during the third week of February. The National Deficit will remain at roughly $239 million. The Federal Budget is expected to exceed $2.9 trillion while revenues will peak around $2.7 trillion.

The Economic Development Administration (EDA) is responsible for promoting regional economic development in distressed communities. The proposed operating figure for FY08 is $202.8 million, which is down from the FY06, $280.4 million budget. To handle the increase in budget cuts the EDA will be simplified by creating the Regional Development Account (RDA). The RDA is a comprehensive application process that aims to be quicker and faster. The EDA programs and eligibility requirements will not change.

The Department of Housing and Urban Development (HUD) has been budgeted at $36.15 billion for the FY08. A major priority for HUD this year will be increasing home ownership. The office for Policy Development and Research (PD&R) has been allocated $65 million for FY08. Research and Technology will receive $40 million for studies and testing. University Programs will be provided $25 million fund minority colleges and universities who form partnerships for revitalization activities in their surrounding communities. Congress is expected to be asked to authorize a new formula for dispersing funds for Community Development Block Grants (CDBG) since it will be experiencing a billion dollar difference between the FY06 request and proposed FY08 request. The primary focus will be upon current demographic trends to better assist the needs of the country’s urban cities and counties. The proposed budget also includes $200 million for Competitive Challenge Grants will be awarded to distressed areas of communities across the country. Program terminations include the Youthbuild programs, Economic Development Special projects, and the Neighborhood Initiative Demonstration. Other programs that have been recommended for budget cuts include the Brownfields Redevelopment Initiative, Rural Housing and Economic Development, Section 108 Loan Guarantees, Renewal Communities, Urban Empowerment Zones, and Enterprise Communities.

The Small Business Administration (SBA) budget will be operating on a proposed budget of $814 million for the FY08. Looking more closely at the numbers breakdown: $464 million is allocated for the new budget authority, $329 million for carryover funds for disaster loans, and $87 million has been proposed for Small Business Development Centers (SBDC). The SBDC provides management assistance for current and prospective small business owners. The administration has proposed $12 million for the Women’s Business Centers (WBC) to support more than 100 resource centers to promote the growth of women owned businesses. The Service Corps of Retired Executives (SCORE), which provides business-counseling services, will be allocated $5 million.

110th Congress
February 12, 2007 – The House Ways and Means Committee led by Chairman Charles Rangel (NY–D) and Ranking Member Jim McCrery (LA-R) passed H.R. 976, the Small Business Tax Relief Act of 2007. The bipartisan legislation is a revenue neutral package that would extend tax provisions to small business owners and open the door for the raising of the Federal minimum wage.

In his first meeting Chairman Richard Neal (MA-D) identified the members of the Select Revenues Measures subcommittee and delivered their agenda for addressing issues in the 110th Congress for the upcoming year. Reform will include the Alternative Minimum Tax (AMT), pension and retirement security, energy incentives, housing programs, and tax simplification. Notables on the subcommittee include Allyson Swartz (PA-D), Lloyd Doggett (TX-D), Rahm Emanuel (IL-D), Phil English (PA-R), and Thomas Reynolds (NY-R).

NABL Meeting
Earlier this month NABL agreed to work as a technical advisor to CDFA on the issue of expanding the definition of manufacturing for purposes of small issue industrial development bonds (IDBs). Both parties are establishing a partnership for a long-term effort as CDFA plans to increase the number of potentially qualified users who can access IDB financing. An updated definition is long overdue and will further encompass technology-based industries, including biotechnology and software, which are becoming increasing important to local manufacturing sectors. The plan is to seek guidance and support from the IRS, then focus attention on Capitol Hill. The announcement of the partnership and idea of amending the definition created some legislative excitement in the industry and was featured in The Bond Buyer on February 20, 2007.

Legislative Committee Meeting
Representatives from AZ, AR, CA, IL, MN, NJ, OH, & WY participated on February 20, 2007 during a CDFA Legislative Committee conference call meeting. During the meeting CDFA discussed its current progress, the changes in office for 2007, and this year’s priorities. Both the House and the Senate in the 110th Congress are under Democrat control. CDFA would like to spread its “sphere of influence” and pay special attention and focus upon the Jr. Democrats and committee members especially in NY, MA, and PA. CDFA’s 2007 priorities were also visited. The effort to amend the definition of manufacturing was further strengthened by establishing a working relationship with NABL. The Bond Cap increase was addressed briefly identifying the need to find champions to help promote the effort with a realistic focus for beyond 2007. Bank Qualified Issues was also touched upon realizing CDFA must partner with other organizations to complete this task. A group of CDFA members and industry stakeholders has been organized to discuss a strategy for amending the limitations on Bank Qualified bonds.

Bank Qualified Issue Meeting
In an exploratory meeting with various stakeholders, a conference call was held on March 1, 2007 to discuss Bank Qualified (BQ) bond issues. The focus of the meeting was to outline a plan for addressing this issue. Proposed solutions include making transactions under $3 million qualify as BQ and getting involved with large interest groups such as higher education, charter schools, and other nonprofit sector interest groups. The main goal is to make BQ an easier and more simplified transaction. The idea is to create significant interest and make IDBs a marketable product for small businesses. Currently small businesses are at a disadvantage compared to mid-sized companies. This will level the playing field and create equal access. In an ongoing process the group looks to reconvene later next month.

Insight From John McMickle – CDFA’s Legislative Representative
Tax issues have dominated the talk and action on Capitol Hill this year. Both the House and the Senate have been pressing small business tax measures in conjunction with the increase in minimum wage. Leadership will come from the powerful forces that want to see the minimum wage increased and the tax bills passed. As mentioned previously, the House recently passed H.R. 976, the Small Business Tax Relief Act of 2007.

In other news, the House and the Senate are reportedly working out a plan for fixing the Alternative Minimum Tax (AMT). The resolve is to come up with a more permanent solution to this challenge. The quick fix has become a yearly routine by simply adjusting the temporary income levels. Senator Max Baucus (MT-D) has suggested a two-year fix. The House Democrats would like a more permanent solution in a revenue neutral package. On January 4, 2007 Senate Finance Committee chairman Baucus and ranking Republican member Charles Grassley (IA) introduced legislation for repealing the individual AMT. It also includes tax incentives for small businesses in response to the raise in minimum wage. No hearings have been scheduled as of yet.

The Bond Buyer
CDFA members have been active and busy in the month of February. Check out these articles of interest in the Bond Buyer this month:

“Empire State Development Corp. issues RFPs for Financial Team”
Tuesday, February 6, 2007 – by Ted Phillips

“Arkansas Development Agency upgraded to A-Plus by S&P”
Tuesday, February 6, 2007 – by Elizabeth Albanese

“MassDev nearly doubles its Bonding from FY 2006 Pace”
Thursday, February 8, 2007 - by Michelle Kaske

“Ways & Means Hurricane Relief Review will not cover Bonds”
Thursday February 15, 2007 – by Alison McConnell

“GO Zone Deals get Green Light”
Friday, February 16, 2007 – Tedra DeSue

“NABL to provide guidance to CDFA on Industrial Development Bonds”
Tuesday, February 20, 2007 - Alison McConnell

“IRS Choice Questioned”
Monday, February 26, 2007 - Alison McConnell

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February 2007

CDFA is starting off the New Year strong with a renewed focus on legislative priorities that improve the tools used in the development finance industry. January was a busy month for the legislative team. Here is a quick rundown of the Council’s legislative efforts this past month.

New Staff Member
CDFA has hired a new Policy and Research Intern, Aubrey Wierda. Aubrey is a senior at Cleveland State University’s Levin College of Urban Affairs and is an Urban Studies major and will be contributing to the overall legislative, policy and research efforts of the Council.

CDFA Agenda
CDFA’s Legislative Committee Chairman Bob Lind, Executive Director Toby Rittner, and Legislative Counsel John McMickle recently met to discuss the Council’s legislative agenda and grassroots efforts for 2007. The past year brought not only attention, but also change to CDFA’s top policy area; improving the rules that regulate the use of Industrial Development Bonds (IDBs). This year will be no different. Special focus will be applied to three distinct areas within IDBs: updating the definition of manufacturing, increasing the bond size limitation, and amending the regulations on non-bank qualified small issue bonds.

Definitional Efforts
In January, CDFA submitted potential legislative language to the National Association of Bond Lawyers (NABL) requesting guidance regarding the Council’s efforts to update the definition of manufacturing as it applies to IDBs. NABL has designated a special committee to address the issue, and to provide CDFA with feedback on this potential strategy.

Bank Qualified Bonds
Another crucial element to improving the use of IDBs is amending the limitations on bank-qualified bonds. “Bank-qualified” status refers to bond issuers who issue no more than $10 million in governmental, 501 (c) (3), and lease obligations in a calendar year. Certain financial institutions, particularly commercial banks, are allowed to deduct 80% of interest expense associated with the purchase of bank-qualified issues. Interest expenses are essentially “carrying costs” (interest paid on borrowed funds, including deposits). Since IDBs do not qualify for “bank-qualified” treatment, borrowers’ costs are raised, generating less incentive for potential economic developers. CDFA has assembled a group of members and colleagues for a meeting to further discuss the issue and strategies for making amendments to the bank qualified limitation to include small issue bonds. More information will come soon on this effort.

Changes in Office
In welcoming the new 110th Congress, we are also welcoming new changes and faces in both the House and in the Senate. Chairman Charles Rangel from New York will lead the House Ways & Means Committee. CDFA is looking to further cement its relationship with Rangel and other committee members this upcoming year. CDFA is also looking to gain the support of NY issuers and underwriters to help support the Council’s legislative efforts.

Chairman Max Baucus (MT) will direct the Senate Finance Committee with the help of the ranking member, Charles Grassley from Iowa. Richard Neal from Massachusetts is chairman of the Subcommittee on Select Revenue Measures, which oversees tax–exempt bonds.

In general, with new leadership brings the chance of new opportunities. CDFA wants to expand its sphere of influence and create attention and support for our priorities and agendas. Other Senate Finance Committee members CDFA wants to establish good, working relationships with include Charles Schumer, NY; Debbie Stabenow, MI; Mike Crapo, ID; Maria Cantwell, WA; Pat Roberts, KS; and Ken Salazar, CO. CDFA members in these states are encouraged to reach out to their Senate offices to encourage support for the Council’s legislative agenda.

Upcoming CDFA Meetings
The CDFA Legislative Committee will hold an open conference call on Tuesday, February 20, 2007 at 2:30pm EST. Those interested in participating should contact Aubrey Wierda at (216) 920-3073 for details.

The Bond Buyer
A number of interesting articles appeared in The Bond Buyer in January relating to the tax-exempt bond industry. Go to http://thebondbuyer.com to read more.

“Ways & Means Announces Tax Hearings, other priorities for 110th Congress”
Friday, January 19, 2007
Alison L. McConnell

“IRS Probing 501(C) (3) s: Defunct entities have $2 Billion outstanding”
Tuesday, January 23, 2007
Alison L. McConnell

“Aide says Local Governments should monitor AMT debate”
Friday, January 26, 2007
Alison L. McConnell

“Pair of House Bills likely to be welcomed by Muni Market”
Wednesday, January 31, 2007
Alison L. McConnell

Council of Development Finance Agencies
815 Superior Avenue Ste. 1301, Cleveland, Ohio 44114 | Phone: (216) 920-3073 | Fax: (216) 771-4938 | Email: info@cdfa.net