February 2009
Legislative Front
CDFA IDB Legislation Included in Senate Stimulus
-Proposed Bill Greatly Impacts Development Finance Industry-
With Barack Obama now inaugurated as the 44th President of the United States, the White House and both chambers of Congress have sped up work on the stimulus package that has been forming over the last two months.
When completed, the stimulus, or American Recovery and Reinvestment Act of 2009, promises to be one of the most important to the development finance industry in decades.
CDFA Expansion of Manufacturing for IDBs Included in Stimulus
On January 23, CDFA’s proposed legislation, S. 158, to expand the definition of manufacturing to open up IDB financing to more high-tech and bio-tech companies was included in the Senate Finance Committee’s stimulus package. That package, including the CDFA legislation, was later approved by the committee and sent to the Senate floor.
>>>Read the CDFA Press Release
>>>Read Senate Finance Press Release
The proposed change would allow for companies who produce both tangible and intangible property to access IDBs. Traditional tax-exempt bond finance programs currently operated by state and local finance agencies do not extend to these important and growing sectors of the manufacturing economy. Once the Senate passes the bill, it will go to conference for differences between the House and Senate bills to be reconciled. After the final bill is passed by both chambers, it will go to the President to be signed into law.
Earlier in the month, S. 158 was reintroduced in the Senate by Senators Olympia Snowe, ME, John Kerry, MA, Blanche Lincoln, AR, and Sherrod Brown, OH. All four senators were also co-sponsors of this legislation in the last Congress. CDFA’s grassroots campaign successfully mobilized members to contact their Senators to urge inclusion of this important development finance legislation into the final Senate stimulus bill.
Additional Stimulus Provisions that Impact Development Finance Industry
The current versions of both the House and Senate stimulus packages include several other provisions that would have a significant impact on the industry. They include:
· Exemption from the individual and corporate alternative minimum tax (AMT) for all tax-exempt bonds issued in 2009 and 2010. Current law subjects tax-exempt bonds, including IDBs, to the AMT, which makes the bonds less attractive to investors.
· The small issuer limit for bank deductibility on certain tax-exempt bonds would raised to $30 million from $10 million and the limit could be elected to be applied to the borrower instead of the conduit issuer for 2009 and 2010.
· The De Minimus Rule would be extended to banks, allowing them to deduct 80% of their interest deduction as long as tax-exempt bonds do not exceed 2% of their assets. Currently, the rule only applies to non-financial institutions.
· A total of $25 billion in Recovery Zone Bonds would be authorized for issuance in 2009 and 2010. $10 billion would be in the form of tax credit bonds and $15 billion in private-activity bonds. “Recovery Zones” would be designated areas of general distress.
· An additional $1.6 billion in Clean Renewable Energy Bonds (CREBs) would be authorized as well as $2.4 billion of Qualified Energy Conversation Bonds (QECBs).
Hunton & Williams has authored a document further detailing and explaining the CREBs, QECBs and Qualified Zone Academy Bonds.
>>>Read the Report
CDFA members and other industry participants are urged to contact their Congressional delegations to encourage support of these provisions as part of the final stimulus package.
Muni “Czar” Being Proposed
The Government Finance Officers Association and other market participants have recommended the creation of a municipal bond “czar.” The position would offer input and advice on the municipal bond market to the Administration.
Industry groups have felt that the municipal market has been largely left out of the discussion during recent discussions by the federal government to improve the financial markets. Having an industry expert with direct contact to the Administration and cabinet level advisors help to correct that problem. Only recently has the Treasury Department been authorized to use TARP funds to help support the municipal bond market after months of resisting calls to do so.
New Legislation Proposed to Encourage Solar Energy
Senator Robert Menendez, NJ, has introduced new legislation to encourage development of the solar energy industry. The legislation would help encourage the use of solar energy by homeowners and small businesses. The initiative would encourage solar financing strategies being adopted by local and state governments around the nation by allowing home and business owners to participate in these local programs while still receiving a full solar federal energy tax credit. In addition, the bill would help spur the manufacturing of solar panels here in the United States and would boost the use of solar power in federal buildings.
New Markets Tax Credits Program Begins Seventh Round of Incentives
The Treasury Department last month announced the opening of the seventh round of competition for tax credits on $3.5 billion of equity investments under the New Markets Tax Credit (NMTC) Program.
To date, the organizations awarded tax credits have raised $12.6 billion in equity investments. Awardees have raised over $1 billion of equity in the past six months alone, demonstrating the important role the NMTC Program can play as an economic development tool during a period of tightened credit markets.