Senate Tax Reform Bill retains private activity bonds but eliminates advance refundings



November 14, 2017

Public Finance Alert

Author(s): Travis Gibbs, Mitchell Rapaport, Bruce M. Serchuk, Carla A. Young

The Senate Finance Committee recently released a summary of its tax reform proposal, which contains significant differences from the House Bill. This alert discusses what state and local governments and other entities need to know about the changes in the Senate Bill and the key differences between the two Bills.

The Senate Finance Committee released a summary of its tax reform proposal on November 9, 2017. The Senate Bill contains significant differences from the House Bill approved by the Ways and Means Committee on the same day. Both the Senate and House proposals eliminate the ability to issue tax-exempt advance refunding bonds; however, unlike the House Bill, the Senate proposal makes no changes to the ability under current law to issue certain private activity bonds and bonds for professional sports stadiums on a tax-exempt basis. Like the House Bill, the changes in the Senate Bill would apply to bonds issued after December 31, 2017, and no transitional rules are currently provided. For a more detailed description of the House provisions, please see our alert dated November 6, 2017.

Both House and Senate eliminate advance refundings

Both the Senate and the House Bills eliminate the ability to issue tax-exempt bonds to advance refund governmental and qualified 501(c)(3) bonds after December 31, 2017, including bonds that are issued to advance refund bonds that are currently outstanding. This change could cause issuers to shorten or forego traditional no-call periods or to lose opportunities to refinance debt at a lower cost, each of which would result in increased borrowing costs to state and local governments.

Senate retains but House eliminates private activity bonds

The Senate Bill does not contain the House provision that would eliminate all private activity bonds that may be issued on a tax-exempt basis under current law. As indicated in our November 6 alert, the House Bill would repeal all exempt facility bonds, qualified 501(c)(3) bonds, mortgage revenue bonds, small issue bonds and student loan bonds, among others, and would apply to bonds issued after December 31, 2017.

Professional sports stadiums

The Senate Bill does not contain the provision in the House Bill eliminating the ability of governmental issuers to finance professional sports stadiums with tax-exempt bonds.

Other changes

  • $15 million limit. The Senate Bill does not contain the provision in the House Bill eliminating the $15 million limit on private activity that applies to larger bond issues.
  • Repeal of tax credit bonds. The Senate Bill does not contain the provision in the House Bill eliminating the ability to issue direct-pay tax credit bonds (e.g., new clean renewable energy bonds).

No transition rules

Like the House Bill, the Senate Bill contains no transitional relief. As currently drafted, both Bills would not permit any advance refunding bonds to be issued on a tax-exempt basis on or after January 1, 2018. As the Bills progress, transitional relief could be provided similar to relief provided in previous tax law changes. It is also important to note that absent a change in the December 31, 2017 effective date in each of the proposals, bond counsel firms will likely be unable to render opinions on advance refunding and private activity bond transactions after that date even if the Bills are still being debated and have not yet become law.

Next steps

The Senate Finance Committee is currently marking up the Senate Bill and upon completion will report the Bill to the full Senate. The full House is expected to take up the House Bill on November 16.

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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