CDFA Legislative Front
July 2008
CDFA IDB Legislation Gains New Co-Sponsor
-Busy Month on Capitol Hill Includes Bond Items-
CDFA’s legislation to expand the use of industrial development bonds (IDBs) continues to garner interest and support on Capitol Hill as Senator Susan Collins, R-ME, has now officially been added as a co-sponsor for S. 2885.
With a strong grass-roots campaign, CDFA expects to continue to add co-sponsors in the Senate, while CDFA‘s legislative team works towards the introduction of a companion bill in the House of
Representatives. S. 2885 was introduced in April by a bi-partisan group of Senators.
IDBs, a bedrock financing tool for the economic development industry, have been subject to outdated manufacturing definitions for the past two decades. Current law does not allow high-tech, innovation and intangible manufacturing practices to be eligible for IDB financing.
S. 2885 would allow for manufacturing companies who produce both tangible and intangible property to access IDBs. The changing U.S. economy is providing new and exciting employment opportunities in the area of software development and biotechnology. Traditional tax-exempt bond finance programs operated by state and local finance agencies do not extend to these important and growing sectors of the manufacturing economy. CDFA’s proposed legislation remedies this challenge.
CDFA has a strong history of passing important development finance legislation. In 2006, CDFA was successful in getting the capital expenditure limit increased from $10 million to $20 million for IDBs allowing more companies to expand and create jobs. Thousands of new IDB issuances have since assisted small to medium sized U.S. manufacturing companies.
The release of CDFA’s 2007 National Volume Cap has demonstrated the impact legislative change can have on the use of IDBs. More than $3 billion of IDBs were issued in 2007 (the first year for which the capital expenditure increase was in effect). That represents an increase of more than 150% over 2006. IDBs posted the largest gain of any private-activity bond category in 2007.
The full CDFA 2007 National Volume Cap Report is available online. >>>READ THE REPORT
CDFA is requesting its members contact their Senators to ask for support and additional co-sponsorship of this key development finance legislation. Senate Finance Committee members will be specifically targeted in coming weeks for co-sponsorships.
IDBs are tax-exempt financings that provide low-cost debt to small- and mid-sized companies that do not have access to credit markets. Expanding the use of IDBs allows these groups to finance expansions and job growth that would not be possible through higher cost financing. CDFA’s proposed changes will result directly in new job growth, investment and economic development.
Given the desire for Congress to pursue legislation that encourages economic growth, CDFA’s proposed legislation should receive strong interest.
Learn More about CDFA’s legislative agenda and S. 2885. >>>READ MORE
Housing Bill Nearing a Vote in the Senate
-FHLB Legislation Included-
The Senate housing bill is expected to finally come to vote sometime after the holiday recess. A vote had been originally expected in late June when the Senate voted to limit debate, thus making the bill filibuster-proof.
Among the bond provisions in the bill is language permitting FHLB member banks to issue letters of credit on all tax-exempt bonds, not just housing bonds. The provision, with a sunset clause in 2010 has already passed the House. The FHLB legislation has been one of CDFA’s legislative priorities this year, and CDFA staff and members have worked hard to get this important development finance legislation approved.
The President has threatened a veto of the bill. The administration has expressed concern over the FHLB language and community development block grant funds earmarked to help cities address the foreclosure crisis.
The bill also gives a permanent exemption to the alternative minimum tax on all new housing bonds in addition to authorizing an additional $11 billion in mortgage revenue bonds not subject to the volume cap.
The delay in the vote by the whole Senate is a result of a desire to look into adding additional bond provisions to the bill, including renewable energy tax credit legislation
Alternative Minimum Tax Patch Passes House
The House recently passed legislation that provides for another one-year patch of the AMT. The vote was largely along party lines with Republicans objecting to revenue offsets to pay for the patch.
The AMT is a tax that applies to interest earned on private-activity and other bonds. It was created to prevent high-income households from paying little or no taxes. However, the AMT is not indexed for inflation, meaning a larger percentage of the population becomes subject to the AMT without one-year patches to the tax code.
The Senate is also working on an AMT patch. The Senate version does not include revenue offsets.
NABL Issues Comments on Form 990
The National Association of Bond Lawyers (NABL) issued comments regarding the new Form 990 and Schedule K for nonprofit organizations regarding their outstanding tax-exempt bonds.
This is the second letter with comments regarding the new disclosure guidelines for nonprofits that NABL has sent to the IRS. NABL had previously sent comments to the IRS in September of 2007.
NABL is concerned that the new IRS guidelines will place a significant record-keeping burden on issuers.
>>>READ MORE
Vote on Credit Rating Agency Legislation Postponed
The role of the credit rating agencies continues to receive interest on Capitol Hill. Rep. Barney Frank, D-MA, chairman of the House Financial Services committee, has taken a strong interest in the role of the credit rating agencies in the municipal market. He has introduced and pushed legislation that requires the rating agencies to rate municipal bonds in the same manner as corporate bonds, based solely on the likelihood of repayment.
At the request of committee Republicans, a vote by Financial Services isn’t expected until after the holiday recess. Republicans are asking for additional hearings on the matter, while Rep. Frank would like to proceed directly to a vote.
Rep. Frank and the Financial Services committee have held several hearings on the credit rating agencies and bond insurance industry as many municipalities have seen their financing costs rise.