In Theaters This Christmas – The Parliamentarian: Slightly Slowing, but Ultimately not Stopping, Passage of the Tax Cuts and Jobs Act

Update:  The President signed the Tax Cuts and Jobs Act into law on December 22, 2017.  On that same date, he also executed the Continuing Resolution passed by Congress that permits the federal government to make expenditures through January 19, 2018.  This Continuing Resolution also suspends the application of the PAYGO law in respect of the annual deficits that will accrue as a result of the enactment of the Tax Cuts and Jobs Act.  Thus, the full sequestration that otherwise could have applied to the subsidies on direct payment tax credit bonds (such as Build America Bonds, Recovery Zone Economic Development Bonds, Qualified School Construction Bonds, Qualified Zone Academy Bonds, and Qualified Energy Conservation Bonds), as discussed below, will not take effect.  Direct payment tax credit bonds do, however, remain subject to sequestration under the Budget Control Act of 2011.  Subsidies on direct payment tax credit bonds are reduced pursuant to that sequestration by 6.6% for the fiscal year ending September 30, 2018.


If action-adventure films with titles such as The Librarian, The Accountant, and The Mechanic can be greenlit, then surely there is a place for The Parliamentarian.[1]  Skeptical?  Read this plotline before dismissing the idea.

Continue Reading

A Christmas Tax Story

Over the last six weeks, my colleagues have posted numerous insightful posts about the various tax bills’ impact on tax-advantaged bonds (see here, here and here).   For our readers who have been entirely consumed by those provisions of the bill, I thought it would be helpful to highlight some of the other provisions of the joint House/Senate tax bill released on December 15. Thus, below is a very brief summary of some of the other noteworthy provisions in the 503 page joint tax bill.

Those receiving gifts in their stockings this holiday season: Continue Reading

Final Tax Reform Legislation Saves PABs and Stadium Bonds, Kills Advance Refundings and Tax Credit Bonds

Signaling the end of our six-week ride in a runaway cement mixer, the Conference Committee for the Tax Cuts and Jobs Act has released its Conference Report, which represents a compromise version of the House and Senate-passed versions of the Act. Each chamber has the votes to enact the compromise bill; they’ll do it, and the President will sign it early next week. The Conference Report follows the Senate approach by preserving tax-exempt private activity bonds and governmental use bonds that are issued to finance professional sports stadiums, but it eliminates tax-exempt advance refunding bonds and tax credit bonds issued after December 31, 2017 – no transition relief. The Conference Report takes a solomonic approach to the alternative minimum tax, repealing it for corporations but not for individuals (though the exemption amount is increased for individuals). This should increase the attractiveness to corporate bondholders of tax-exempt private activity bonds that presently are subject to AMT.

Continue Reading

Inconceivable! Congressional Repeal of Tax-Exempt Advance Refunding Bonds Might Not Generate the Revenue that Congress Thinks it Will

White smoke rises in the east! Later today (Friday), it is expected that the House-Senate Conference Committee will release a final draft of the Tax Cuts and Jobs Act. Consistent with what was in both the Senate version (discussed here) and the House version (discussed here), it is further expected that the draft released by the Conference Committee will eliminate tax-exempt advance refunding bonds.[1] In a misconception akin to an economic “epiphany” scribed on the back of a cocktail napkin, the House indicated that the elimination of tax-exempt advance refunding bonds will raise revenue because the federal government will no longer be extending a subsidy to two issues of tax-exempt bonds that are outstanding simultaneously to finance the same project. According to the Joint Committee on Taxation, eliminating tax-exempt advance refunding bonds would save $16.8 billion over the next 10 years. Aside from the savings identified by the Joint Committee on Taxation, the Senate could not be bothered to provide an explanation for the elimination. We discuss the proposed elimination of advance refunding bonds and scrutinize the purported savings here.

Continue Reading

Open Market Escrow Bidding – Some Thoughts from Bidding Experts (Not Us – The Real Experts)

Update:  Treasury has announced that the sale of SLGS is being suspended at 12:00 p.m. ET on Friday, December 8, 2017.  SLGS subscriptions filed before 12:00 p.m. ET on December 8, 2017 will be honored.

As we reported on November 22 in this blog (SLGS Will Soon be Unavailable for Subscription), beginning on or before December 8, we should expect the reinstatement of the federal debt ceiling to force the SLGS window to close.  The current suspension of the debt ceiling expires on December 8, and there is no expectation that the suspension will be extended or that the debt ceiling will be raised by that date.  This unfortunately occurs just as the glut of tax-exempt advance refundings is hitting the market so that those issues can close before the possible (likely?) year-end deadline before such advance refundings are outlawed by the pending House and Senate tax bills (a discussion of the Senate bill is available here and here and a discussion of the House bill is available here).  This points to open market escrow securities soon being the only game in town, raising questions as to the availability of bids and open market securities for all the escrows soon to require funding.  I recently had the nerve in this exceptionally busy time to ask two of the most experienced bidding agent representatives I know for a few moments of their time to share their perspectives on the market for these escrow securities.  Both were very generous with their time and thoughts, which I report below.

Continue Reading

While You Were Sleeping . . . . The Senate Passed Its Version of the Tax Cuts and Jobs Act

At about 2:00 a.m. EST on Saturday, December 2, 2017, the only people awake in Washington, D.C. were alcoholics, the unemployable, and angry loners.  Also awake were members of the United States Senate (but I repeat myself).  At that early hour, the Senate passed its version of the Tax Cuts and Jobs Act (the “Act”) by a vote of 51 – 49.  Bob Corker of Tennessee was the only one of the 52 Senate Republicans to vote against the Act; none of the 48 Senate Democrats voted for it.

The House of Representatives passed its version of the Act on November 16.  The differences between the versions of the Act as passed by the House and Senate will now be reconciled either by a conference committee comprised of members of the House and Senate or some other form of negotiation between the two chambers of Congress.  Once a final version of the Act has been negotiated, the House and the Senate will vote on this version, assuming it is not identical to either the House or Senate version.  For analysis and speculation regarding the Act’s effect on tax-exempt bonds, hit the jump.

Continue Reading

Advance Refundings, Paygo, and BABs

For those of you who were enjoying Thanksgiving last week and missed the Senate Finance Committee’s release of its proposed legislative text of the Tax Cuts and Jobs Act, see below for how succinctly tax-exempt advance refunding bonds can be removed from the Code:

Yes, I’m cheating a little; there are a few more lines devoted to conforming amendments and effective dates. But that’s it, out of 515 pages.

So let’s say you read all 515 pages and were wondering, is there anything else I’m missing? The answer is yes, maybe. As we have previously covered, there is currently a 6.6% haircut on the subsidy paid by the federal government to the issuers of direct-payment credit bonds, such as Build America Bonds (“BABs”). See here and here. As has been reported in the press, the tax reform legislation might result in further sequestrations under the legislation commonly known as “Pay as You Go” or PAYGO. See WaPo coverage here. Bill Daly, director of governmental affairs at the National Association of Bond Lawyers, has noted in a Bond Buyer article (here) that with PAYGO, “it looks like the BAB program could be zeroed out.” Or will it? Senate Finance Committee chairman Orrin Hatch has claimed that “There hasn’t been a single sequester ordered under the PAYGO statute.” See here.

Will the haircut remain at 6.6%? Will it go to 100%? Stay tuned.

SLGS Will Soon be Unavailable for Subscription


Are we having fun yet?

To add further stress to the advance refunding issues that everyone is scrambling to close by the end of the year, subscriptions for SLGS  will not be available on or after December 8, if not earlier.

The most recent suspension of the application of the federal debt ceiling expires on December 8, and Congressional leaders have said that Congress will not vote this December either to extend the suspension of the application of the debt ceiling or to increase the ceiling.  Instead, Congress will rely on the Treasury’s use of “extraordinary measures” to defer having to deal with the debt ceiling.

One of these extraordinary measures is the suspension of the sale of SLGS.  In all past instances when Treasury has suspended the sale of SLGS, Treasury has honored subscriptions for SLGS that were made before the suspension took effect, even if the delivery date of the SLGS fell after the suspension date.  We anticipate that the Treasury will continue its historic practice here, but we will not know for certain until Treasury announces the closure of the SLGS window.  Issuers should be prepared to bid for open market securities if a SLGS subscription cannot be made before December 8.

Because there are going to be a crush of advance refunding issues coming to market ahead of the potential December 31, 2017 repeal of tax-exempt advance refundings, issuers should also anticipate some difficulty in attracting at least three bids and/or favorable prices, given the likely volume of advance refunding issues that will be chasing a relatively limited number of providers of open market securities.



The Senate Gives the House the Byrd and Retains Tax-Exempt Qualified Private Activity Bonds, Tax Credit Bonds, and Tax-Exempt Stadium Financing Bonds. Tax-Exempt Advance Refunding Bonds, However? Not so Much.

We summarized last week the tax-exempt and tax-advantaged bond provisions of the Tax Cuts and Jobs Act (the “Act”), as introduced and referred to the House Ways and Means Committee.  As a reminder,  these provisions, which came as a shock to state and local governments, 501(c)(3) organizations, and others involved with public finance, would eliminate the ability of state and local governmental units to issue: (1) tax-exempt qualified private activity bonds (including qualified 501(c)(3) bonds); (2) tax-exempt advance refunding bonds; (3) tax-exempt professional sports stadium bonds; and (4) tax credit bonds (regardless of whether the bondholder receives a tax credit or the issuer receives a direct payment subsidy in respect of the tax credit bond).

The foregoing provisions were included in the version of the Act that was approved today by the House Ways and Means Committee.  With one notable exception – the prohibition on tax-exempt advance refundings —  these provisions, and indeed any tax-exempt bond provisions, are absent from the Senate Finance Committee Chairman’s Mark of the Act, which was also released today.  More analysis and speculation after the jump.

Continue Reading

So it Begins: First Draft Tax Reform Bill Eliminates 501(c)(3) Bonds and All Other Private Activity Bonds, All Advance Refunding Bonds, All Tax Credit Bonds, and Governmental Bonds for Sports Venues

Notwithstanding repeated assurances from all corners that tax reform wouldn’t touch the exclusion from gross income of interest on tax-exempt bonds (here, here, and here), proposed legislation would touch it indeed, and quite profoundly. The opening statement in what is sure to be a long legislative discussion on tax reform came this morning, as the House Ways & Means Committee released the first draft of a tax reform bill, which was introduced as the Tax Cuts and Jobs Act. The high[sic]-lights, if the bill were enacted into law:

  1. No private activity bond issued after 2017 could be issued as a tax-exempt bond. This includes bonds issued for the benefit of 501(c)(3) organizations.
  2. No tax-exempt bond issued after 2017 could be issued to “advance refund” another bond.
  3. No tax credit bonds (regular tax credit bonds or direct pay) could be issued after 2017.
  4. No governmental bond issued after November 2, 2017 (!) could be used to finance a “professional sports stadium.”

Let’s take them in order, after the jump.

Continue Reading