Keep Your Paws Off My Positive Arbitrage – “With the Same Power Comes More Responsibility” (3/3)

By Natalie Vicchio on July 3, 2023 Posted in General

The time has come, friends. The Rebate Series ends with this post. At least for a little while. So far we’ve covered the basics of arbitrage and rebate and two key timing-based spending exceptions: the 6-Month Exception and the 18-Month Exception. This party bus now comes to a halt with the Two-Year Spending Exception, the last and longest of the timing-based exceptions to the rebate requirement. If you’ve made it this far, thank you. If this is your first rebate-related post, please read the previous posts setting the stage.

Keep Your Paws Off My Positive Arbitrage – “With Great Power Comes Some Responsibility” (2/3)

By Natalie Vicchio on May 17, 2023 Posted in General

Our previous post kicked off our Rebate Series by introducing core concepts and terms. However, for every rule there is an exception. And, as you will learn shortly, for every exception there is an exception to that exception (except when there is not).

The next two episodes will focus on the so-called timing exceptions. In the rebate world, there are three: the 6-month, 18-month and two-year spending exceptions to the rebate requirement. Two general points to keep in mind: (1) each of these exceptions is independent of the others; so an issue could qualify under more than one, and (2) the spending exceptions are not automatically applied; so an issuer can choose NOT to apply them.

Keep Your Paws Off My Positive Arbitrage (1/3)

By Natalie Vicchio on April 19, 2023 Posted in General

Reader’s Note: As this is my first post on The Public Finance Tax Blog™ let me provide a necessary introduction. My name is Natalie, an associate with the Public Finance Tax Group here at Squire Patton Boggs. A little bit about me: I have the superhuman ability of not getting mosquito bites; I hate when people pronounce the “L” in salmon; and perhaps most relevant to you, if I can learn tax and finance concepts, so can you.

Additional Reader’s Note: This post has gone through several iterations already. Not because the information missed the mark (a junior associate’s worst nightmare, I promise you), but because I needed to “fun it up.” When tax lawyers call you boring, it may be time to rethink most if not all life decisions. Short of quitting my job, changing my name and generally falling off the face of the planet, I suppose I’ll start here. With this post. On Rebate. Naturally.

When Overburdening isn’t a Burden

By Michael Cullers on March 16, 2023 Posted in Arbitrage, Working Capital Financings

Cindy Mog recently reacquainted us with abusive arbitrage devices, including the factors that evidence overburdening of the tax-exempt bond market (issuing bonds too early, issuing too many bonds, and issuing bonds with an excessive weighted average maturity) and factors that countervail what would otherwise constitute overburdening (bona fide cost underruns, bona fide need to finance extraordinary working capital items, and an issuer’s long-term financial distress).

Abusive Arbitrage Devices – It’s Time to Get Reacquainted 3/3

By Cynthia Mog on March 12, 2023 Posted in General

(Episode 3 – What Happens to the Arbitrage Sinners and the Arbitrage Saints?)

As you may remember, in Episode 1 we discussed some background regarding the prohibition against abusive arbitrage devices and the policy behind that prohibition – to encourage investment of tax-exempt bond proceeds in long-lived, tangible assets, while discouraging the generation of arbitrage on the investment of such proceeds. In Episode 2 we discussed the three factors the federal government examines to determine whether an issuer has overburdened the tax-exempt bond market, which results in an abusive arbitrage device if the issuer has also successfully exploited the difference between taxable and tax-exempt interest rates. In this episode, we will describe the penalties imposed upon rule-breakers and the rewards offered to rule-followers.

Abusive Arbitrage Devices – It’s Time to Get Reacquainted (2/3)

By Cynthia Mog on February 26, 2023 Posted in General

(Episode 2 – Overburdening (Generally) Not Allowed)

As you may remember, in the first episode, we discussed how the federal government’s primary goal in subsidizing tax-exempt bonds is to encourage investment by issuers in long-lived, tangible assets. We also discussed how the federal government has tried to keep issuers on the intended path by preventing them from exploiting the difference between the tax-exempt and taxable markets. Finally, we noted that bonds will generally be taxable arbitrage bonds if the issuer has successfully exploited the difference between tax-exempt and taxable interest rates and has also overburdened the tax-exempt bond market.

This episode will discuss the three rules intended to prevent the overburdening of the tax-exempt bond market – (1) You shall not issue too early; (2) You shall not issue too much; and (3) You shall not issue for too long.

Abusive Arbitrage Devices – It’s Time to Get Reacquainted (1/3)

By Cynthia Mog on February 5, 2023 Posted in General

(Episode 1 – Background and Arbitrage Basics)

Sometimes it is a good exercise to remind ourselves of some basic rules governing tax-exempt bonds. One such rule is that bonds are taxable arbitrage bonds if an “abusive arbitrage device” is used in connection with the bonds. An abusive arbitrage device is any action that has the effect of: (1) enabling the issuer to exploit the difference between tax-exempt and taxable interest rates to obtain a material financial advantage; and (2) overburdening the tax-exempt bond market.[1] (Keep in mind that an “abusive arbitrage device” is only one specific type of “arbitrage bond.” We chose to cover abusive arbitrage devices because they are of renewed relevance and they touch on many arbitrage concepts.) The first element of an abusive arbitrage device has been difficult (to the point of impossibility) to satisfy since Mad Men first aired.[2] However, the Federal Reserve’s hawkish monetary policy has now made it much easier to exploit the difference between tax-exempt and taxable interest rates. Thus, it’s time to get reacquainted (or acquainted, depending on where you are in your career) with the concept of abusive arbitrage devices. The Public Finance Tax Blog is here to help, with a three-part mini-series of posts on this topic.

I Know It When I See It – What is a Capital Expenditure?

By Cynthia Mog on January 23, 2023 Posted in Uncategorized

According to Wikipedia, the fount of all knowledge, the phrase “I know it when I see it” is a colloquial expression by which a speaker attempts to categorize an observable fact or event, although the category is subjective or lacks clearly defined parameters. This phrase was famously used in a U.S. Supreme Court decision to describe the threshold test for obscenity. (See Jacobellis v. Ohio, 378 U.S. 184 (1964)). Although this blog post will, unfortunately, likely not become as well known as the Jacobellis case, it will discuss, “What is a Capital Expenditure?” My guess is that a lot of tax-exempt bond advisors use intuition when determining that certain expenditures qualify as “capital expenditures” for tax-exempt bond purposes. In other words, they know a capital expenditure when they see one. However, the question as to what constitutes a “capital expenditure” under the tax-exempt bond rules may be difficult to answer at times.

Toll-Free Telephone TEFRA Hearings Available Permanently

By Squire Patton Boggs on March 19, 2022 Posted in TEFRA

The IRS will permanently allow state and local governments to hold public hearings using a toll-free telephone number to satisfy the TEFRA hearing requirement for private activity bonds.[1] No in-person option will be required to satisfy the TEFRA public hearing requirement, but state and local governments must continue to follow applicable local laws, which may require public meetings to be held in person.

“Administrative History?” – President Releases Guidebook for Infrastructure Law

By Squire Patton Boggs on February 7, 2022 Posted in Breaking News, Legislation

Following in the footsteps of pioneers such as Matthew Lesko, the White House has released a guidebook to the funding available under the Infrastructure Investment and Jobs Act. (It should be at least somewhat more authoritative than Gobs and Gobs of Free Stuff,[1] at least as it pertains to the legislation in question.)

The approach in the Infrastructure Investment and Jobs Act to providing funding for state and local infrastructure focused on grants and direct aid, and new borrowing programs were somewhat limited. While its precedential status in the courts remains an open question, the guidebook is an essential tool for state and local governments in determining whether their projects are eligible for federal funds and, if so, how much money they can get. The guidebook weighs in at a doorstop-y 465 pages, but the real star of the show is the sortable spreadsheet of programs, which is available here. We are known here for our unrepentant bias in favor of spreadsheets, but the efficiency of the spreadsheet of programs will be obvious to even the most ardent skeptic.

[1] 3rd ed. (August 1, 1996).