WASHINGTON — Two members of the House Ways and Means Committee introduced bipartisan legislation Thursday that would permanently increase the bank-qualified debt limit to $30 million from $10 million and index it for inflation.
Reps. Tom Reed, R-N.Y. and Richard Neal, D-Mass. unveiled the “Municipal Bond Market Support Act of 2012,” which would allow banks to deduct 80% of the cost of buying and carrying the tax-exempt bonds of issuers whose annual issuance does not exceed $30 million.
The bill also would apply the higher $30 million limit to individual borrowers — rather than the issuer — in conduit financings, and would allow nonprofits to use bank-qualified bonds.
“As a former mayor and having dealt with the need to have resources available to do our local projects, to me this is common sense, a no brainer,” Reed told The Bond Buyer. “It’s common sense to try to free that capital up and get to these local projects and do it in a cost-effective manner.”
Earlier this year, Neal unsuccessfully tried to amend the transportation bill in the House to include an increased limit for bank-qualified bonds, but the amendment was shot down by Republicans.
However, the Senate bill includes a provision to raise the bank-qualified bond limit to $30 million from June 30, 2012, to July 1, 2013. House and Senate conferees currently are negotiating a compromise measure from those two bills.
“These bonds are crucial because they provide small municipalities with access to lower-cost borrowing,” Neal said.
The two lawmakers introduced the legislation before the November elections to give them enough time to shore up support from members on both sides of the aisle, according to Reed. They are first targeting members who have held local office before because they are a receptive audience, he said.
“Hopefully we’ll get the ball rolling and it will generate a lot of support to push it forward,” Reed said. He hopes the bill can be inserted into one of the larger tax vehicles that are expected to pass by the end of the year, such as an extension of the 2001 and 2003 Bush tax cuts.
“The $30 million level is critical because the $10 million level that was originally set just doesn’t take into consideration inflation and present-day costs,” Reed said.
The $10 million limit has been in place since 1986, with the exception of the American Recovery and Reinvestment Act increase to $30 million that was in effect from Feb. 17, 2009, through the end of 2010.
Muni market participants praised the legislation. Mike Nicholas, CEO of Bond Dealers of America, said his group pushed hard for the measure and commended Reed and Neal for supporting munis.
“Bank-qualified bonds are an important financing option for municipal governments, enabling them to finance important capital improvement projects while saving them millions of dollars in financing costs annually,” he said.
“This is a very significant and positive development,” said Chuck Samuels, a partner at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC, who represents the National Association of Health and Higher Education Facilities Authorities. “It shows the bipartisan support for this important legislation.” He said he hopes the bill will stimulate more support among members in the House.
“This legislation would help thousands of small communities across the country save on debt issuance costs, which ultimately would benefit taxpayers,” said Susan Gaffney, director of the Government Finance Officers Association’s federal liaison center. “We look forward to working with Reps. Reed and Neal to have the bill enacted, and appreciate their leadership on this issue.”
Separately, Rep. Shelley Berkley, D-Nev. introduced a bill to make the state and local tax deduction permanent and to impose a “fair share tax” on high-income taxpayers.
