CDFA Legislative Front
January 2008Congress Works on Bonds and Spending Bills in December
Budget Battles Grab the Headlines as CDFA Prepares for 2008 Legislative Season
December is typically a slower month for industry initiatives such as CDFA’s legislative agenda as Congress usually prepares for its holiday recess. The past month was dominated by appropriations battles and last minute deal making heading into 2008. Congress did address a number of bond finance related measures impacting energy, aggie and stadium bond financing. CDFA was also busy in December preparing for the upcoming legislative season.
Appropriations Bill Passed
Appropriations bills and battles dominated the action in Washington, D.C. last month. With numerous continuing resolutions needed to keep the federal government running, it was not clear if all the necessary appropriations legislation would be passed before the end of 2007.
However, Congress finally passed a $555 billion omnibus package that was enacted by the President. The largest obstacle in setting funding for the federal government for 2008 had been the White House’s position of vetoing any bill that exceeded their recommended spending levels. Original legislation had surpassed the White House’s numbers by $22 billion before trimming that number down to $10 billion. No new taxes were raised for the bill, which also includes spending for the wars in Afghanistan and Iraq.
CDFA continues to push definition change for IDBs
CDFA counsel John McMickle continues to push legislation to change the definition of manufacturing for industrial development bonds (IDBs). The proposed change would allow more high technology firms to take advantage of this financing tool. CDFA and its members will continue to look for support in the House Ways and Means and Senate Finance Committees, the two committees that handle municipal bond legislation.
The New Year promises to be a busy one for CDFA on the Hill. With the stalemate over the appropriations bills over, CDFA is confident that more attention can be turned to CDFA’s legislative agenda, which also includes continued support of H.R. 2091 and S. 1963. These bills allow FHLB member banks to offer letters of credit on private-activity bond transactions.
Private-activity bond volume cap raised
Due to population increases and cost-of-living adjustments for small population states the 2008 volume cap has been set at $28.48 billion. This represents a $295.44 million increase over the 2007 cap figure. Overall, 21 small population states and the District of Columbia received increases in their volume cap based upon the new data and procedures announced by the IRS. The minimum volume cap a state can be given is now $262.095 million regardless of population. For the 29 large population states, the $85 per resident has remained in effect for the second straight year to set their volume cap number.
This means that Connecticut, Michigan, New Jersey, New York, and Ohio all have volume cap decreases after the Census estimates showed population declines in those states. New Jersey and Michigan posted the largest volume cap decreases of the six with the others having minimal loses. California will again have the largest volume cap number. It’s volume cap will be set at $3.107 billion, an $8 million increase. Texas is second with a $2.032 billion volume cap.
The volume cap numbers have been adjusted annually, according to law, since 2000. Since 2003, the per-resident figure has been indexed for inflation. The Senate Finance Committee has also been discussing a $15 billion increase to the volume cap over three years that would be devoted specifically to subprime mortgage refinancing.
Senate leaves out energy incentives, including $5.5 billion in tax-credit bonds
Senate Democrats were forced to drop $5.5 billion in taxable tax-credit bonds from energy legislation last month. The energy legislation was one vote short of the necessary 60 votes to limit debate and proceed with a vote. The bill contained a total of $22 billion in energy-tax incentives. Republicans opposed the bill and denied it from coming to a vote because the tax package would have resulted in a veto.
Senate leaders moved forward with the bill minus the energy incentives, which were being paid for by eliminating $13 billion in tax breaks to oil and gas companies. One major feature of the legislation requires automakers to increase fuel efficiency to 35 miles per gallon by 2020.
AMT fix still not finalized
The House has passed a one-year patch of the alternative-minimum tax. The patch would prevent 23 million taxpayers from being subject to the AMT. However, the bill faces opposition from Senate Republicans and the White House. The House bill pays for the patch by closing a loophole in the tax code that hedge fund managers normally use to lower their tax burden. While most Democrats and Republicans agree that a permanent fix for the AMT, which is not fixed to inflation causing larger and larger portions of the population to be subject to it, they disagree with how to deal with it.
Republicans disagree with raising taxes for one group to give a tax cut to another group. The Senate passed an AMT fix that had no off-setting revenue raisers to pay for the one-year patch. The AMT was designed to target high-income households as a means to prevent them from using loopholes and tax breaks to pay little or no taxes. The AMT affects income earned as interest on private-activity bonds and some governmental and 501(c)(3) bonds.
Farm bill allows stadium bonds, increases aggie bonds
The Senate passed legislation that creates new categories of municipal bonds for timber preservation, rural development, and fish habitat conservation. An amendment to the bill that would have effectively prevented public financing of stadiums was dropped from the bill. The amendment would have made most stadium bond deals taxable, which would have virtually closed the market for stadium financing. The bill would also increase the maximum size of “aggie” bonds from $250,000 to $450,000. Aggie bonds are tax-exempt bonds used to give low-interest loans to first time farmers and ranchers. The legislation would also index the limit to inflation.
Delay for Form 990 Bond Questionnaire
The IRS has decided to not require tax-exempt entities to file a new form detailing their debt for the 2008 tax year. Issuers will instead be required to list all outstanding bond issues to the IRS and a description of each issue and its purpose. A more complex form and more detailed information will be required of issuers beginning in 2009. The new form, which will be called Schedule K beginning in 2009, is part of a larger movement to increase reporting and regulation in the municipal market.