The municipal bond industry could benefit from several federal actions to provide regulatory relief as well as additional legislation from Congress to deal with the coronavirus emergency.
That’s the message from the National Association of Bond Lawyers in separate letters it has sent to congressional leaders on legislative suggestions and to the Treasury and Internal Revenue Service on regulatory actions.
Carol Lew, a shareholder at Stradling Yocca Carlson & Rauth who led a group of NABL attorneys on an 11-point list of requests to Congress sent March 22, said Monday that list is being refined as Congress begins work on a fourth round of emergency stimulus legislation.
“NABL is working on a more lengthy submission which zeros in on that list and provides a little more of what I’ll call more technical analysis,” Lew said. “It’s a collaborative effort among a lot of different people in the industry. We’re hopeful we get something in soon.”
The $2 trillion emergency spending bill signed by President Trump on Friday authorized the Federal Reserve to begin purchasing municipal securities on the secondary market within 10 days. It also provides several tranches of financial assistance to state and local governments, the education sector, airports and transit systems.
NABL suggested that the federal government also be allowed to purchase new issues of tax-exempt bonds to allow access to the primary market by state and local government.
Congress could legislatively reinstate advance refunding of outstanding debt to allow more flexibility to issuers and bring back direct-pay Build America Bonds which were part of the 2009 American Recovery and Reinvestment Act, the March 22 letter said.
The letter also suggested lifting the volume cap for single-family and multifamily housing bonds for 2020 through 2022 because the current emergency is expected to exacerbate the housing shortage.
The letter also has requested regulatory relief in several areas for the municipal bond sector from Treasury and the IRS in light of the coronavirus emergency.
“There are things that could be done for working capital borrowings that could be done completely administratively,” Lew said, speaking for herself.
The NABL letter suggested the Treasury should use the extraordinary working capital exception under Regulation Section 1.148-6(d)(3)(ii)(B) to provide no retesting for deficit financings for at least 10.5 years after issuance to handle unanticipated and difficult to predict cash flows.
In a separate March 25 letter to the Treasury and the IRS, NABL requested two other regulatory relief measures.
“This letter was meant to be emergency relief for technical issues,” said NABL President Richard Moore, a tax partner at Orrick.
One asked for a waiver of the in-person public hearing requirement for issuance of private activity bonds under the 2019 update to the 1982 Tax Equity and Fiscal Responsibility Act (TEFRA).
The waiver request comes at a time when many communities have banned public assemblies in order to mitigate the spread of coronavirus. Many communities, according to NABL, “are prepared to offer public hearings using telephone access, with or without online access.”
The second request asked for reinstatement of a temporary rule promulgated during the 2008 financial crisis that allowed local governments to reacquire their own debt because they have been unable to refund or remarket their bonds and still qualify for later marketing the same debt with continued tax-exempt status.
"If the issuer acquires its own debt, under general tax principles that debt would typically be treated as extinguished, terminated," said Moore.
That means the issuer may be unable to later resell that debt to the public markets as tax-exempt.
Two weeks ago alot of issuers were having problems finding repurchasers of their debt or getting offers only at high interest rates.
Moore said the Treasury and the IRS acknowledged receipt of the March 25 letter, but have not taken any action as yet.
