New Definition of Sophisticated Municipal Market Professionals
The Municipal Securities Rulemaking Board (“MSRB”) requires a dealer to disclose to its customers all material information about a proposed transaction that is known to the dealer as well as material information about the security that is available to the market from established industry sources. Since 2002, dealers have distinguished their disclosures based on different capabilities of certain institutional investors as well as different types of customer-dealer relationships. Sophisticated Municipal Market Professionals (“SMMPs”) are institutional customers capable of independently evaluating investment risks and values of municipal securities and recommendations from municipal securities dealers. In the last 10 years, the amount of information publicly available about municipal bonds has significantly increased, making material facts about municipal bonds easier to discern. Thus, the MSRB proposed simplifying the analysis used to determine whether certain institutional customers qualify as SMMPs.
As revised, an SMMP is an institutional customer (1) that the dealer has a reasonable basis to believe is capable of evaluating investment risks and market value independently, and (2) that affirmatively indicates it is exercising independent judgment in evaluating the recommendations of the dealer. In order to satisfy the “reasonable basis” requirement, the dealer must consider the amount and type of municipal securities owned or under management by the institutional customer. The institutional customer may affirmatively indicate its independent judgment orally or in writing, and may provide the affirmation on a trade by trade basis, a type of obligation basis, or on all potential transactions.
When the dealer has reasonable grounds to conclude that the institutional customer is an SMMP, the dealer’s obligation to ensure disclosure of material information available from established industry sources is deemed fulfilled. Of course, the dealer is still prohibited from engaging in deceptive, dishonest, or unfair practices.
Dealers must also have a reasonable basis for recommending a particular security or strategy and have reasonable grounds for believing the recommendation is suitable for the customer. Dealers fulfill this obligation in different ways, depending on the nature of the customer and the specific transaction. When the dealer has reasonable grounds to conclude that an institutional customer is an SMMP, its suitability requirement is deemed fulfilled.
Natural persons can also be considered institutional investors. Under the new definition, the threshold amount for natural persons to be considered institutional customers dropped from $100 million to $50 million.
The new definition became effective July 9, 2012.
MSRB Strengthens Regulation of Broker's Brokers
“Broker’s brokers” are intermediaries between selling dealers and bidding dealers of municipal securities. They provide secondary market liquidity in the municipal securities market, which helps ensure that retail investors receive fair and reasonable pricing of municipal securities. One way that broker’s brokers bring buyers and sellers together is through a “bid-wanted,” in which the broker’s broker seeks bids from dealers for a particular bond that another dealer wishes to sell. The Municipal Securities Rulemaking Board (“MSRB”) has established a new rule designed to promote fairer results in these transactions.
Under the new rule, broker’s brokers are required to make reasonable efforts to obtain a fair and reasonable price for the selling dealer, in light of prevailing market conditions. The broker’s broker must use the same care and diligence as if the transaction were being done for its own account. Thus, it is required to disseminate a bid-wanted widely and make a reasonable effort to reach bidding dealers with specific knowledge of the issue or known interest in comparable securities. There is a safe harbor: if a broker’s broker conducts bid-wanteds in the manner described by the rule, it satisfies its pricing duties.
The rule also imposes new record-keeping requirements. Broker’s brokers must keep records of bids, offers, changed bids and offers, time of notification to seller of high bid, policies and procedures concerning bid-wanteds and offerings, and any joint representation agreements of bidders and sellers.
The new rule becomes effective December 22, 2012.Posted In Municipal Finance and Bonds
MSRB Extends Focus on Conflicts of Interest
The Municipal Securities Rulemaking Board (“MSRB”) is seeking comments on a possible proposal to require underwriters and municipal advisors to disclose whether they have made or received certain payments in connection with new issues of municipal securities. The MSRB is concerned about conflicts of interest that impede the ability of municipal market professionals to act fairly and objectively. Public disclosures of these payments could alert investors and other market participants to possible conflicts of interest and provide municipal entities (and the public) with useful information to select competent and conflict-free underwriters and municipal advisors, all of which bolsters confidence in the integrity of the municipal securities market. Accordingly, the MSRB is considering requiring disclosure by underwriters and municipal advisors of any payments, credits, quid pro quo arrangements or other financial incentives provided to any party (including municipal entities) and received from any party other than a municipal entity.
Possible underwriter disclosures include:
- Any financial incentives received by the underwriter from any third-party for recommending a municipal securities financing (a “new issue transaction”) to the municipal entity;
- Any financial incentives received by the underwriter from any third-party for recommending that any third party play a role in connection with a new issue transaction;
- Any other financial incentives received by the underwriter from any third-party in connection with a new issue transaction; and
- Any financial incentives paid by the underwriter to any third-party recipient in connection with a new issue transaction, including financial incentives paid for the purpose of obtaining or retaining any such new issue transaction.
Possible municipal advisor disclosures include:
- Any financial incentives received by the municipal advisor from any third-party for recommending any municipal financial product or the issuance of municipal securities (an “advised transaction”) to the municipal entity;
- Any financial incentives received by the municipal advisor from any third-party for recommending that any third-party play role in connection with an advised transaction;
- Any other financial incentives received by the municipal advisor from any third-party in connection with an advised transaction;
- Any financial incentives received by the municipal advisor from any party to conduct a solicitation of a municipal entity to obtain or retain an engagement in connection with municipal financial transactions, the issuance of municipal securities or the provision of investment advisory services (a “solicitation”), including any payment made by the party on whose behalf the municipal advisor makes the solicitation; and
- Any financial incentives paid to the municipal advisor to any third-party in connection with an advised transaction or any other engagement to provide advice as a municipal advisor, including financial incentives paid for obtaining or retaining any such advised transaction or engagement.
Comments are due by July 31, 2012.Posted In Municipal Finance and Bonds
Underwriters Under the Gun on New Disclosures
Last week, the Securities and Exchange Commission (SEC) approved new rules regarding the disclosure duties of underwriters to municipal issuers of securities that were proposed last summer by the Municipal Securities Rulemaking Board (MSRB). The new rules include explicit and expanded requirements for underwriters aimed at protecting municipal issuers. Current rules already prohibit an underwriter from engaging in any deceptive, dishonest or unfair practice with respect to municipal issuers, but the new rules ensure fair dealing with state and local governments and that they have necessary information to make the best decisions when considering undertaking financial transactions.
Thus, the new rules require underwriters to disclose to municipal issuers the risks associated with complex municipal bond transactions, potential conflicts of interest, and compensation received from third-party providers of derivatives and investments, among other things. The new rules also provide specific examples of how underwriters must fulfill their obligation. Some of the new requirements are that:
An underwriter must provide “robust disclosures” as to its role in the transaction, its compensation, and any actual or potential material conflicts of interest. For example, an underwriter must disclose whether its compensation is contingent upon closing the transaction or the size of the transaction. If so, it must also disclose that this presents a conflict of interest because it may cause the underwriter to recommend a transaction that is unnecessary or in an amount that is larger than necessary.
All representations made by underwriters to state and local governments must be truthful and accurate and must not misrepresent or omit material facts. For example, an underwriter’s response to an issuer’s request for proposals or qualifications must fairly and accurately describe the underwriter’s capacity, resources, and knowledge to perform the proposed underwriting. An underwriter must not represent that it has the requisite knowledge or expertise with respect to a particular financing if its personnel lack the requisite knowledge or expertise.
Underwriters that recommend complex transactions or products are required to disclose all material financing risks and characteristics, incentives and conflicts of interest. For example, variable rate demand obligations and derivatives such as swaps are the sorts of complex transactions that would require the underwriter to make this disclosure. The level of disclosure may vary depending on the issuer’s knowledge or experience with the proposed structure.
An underwriter’s duty to have a reasonable basis for its representations to issuers extends to representations made in connection with preparation of disclosure documents. For example, the underwriter must have a reasonable basis for the representations contained in its closing certificates that will be relied upon by the issuer.
The duty to treat state and local governments fairly requires that compensation paid by the underwriter to the issuer is fair and reasonable in light of all relevant factors. For example, if the underwriter represents that it is providing the “best” market price or that it will exert its best efforts to obtain the “most favorable” pricing, its actions must be consistent with those representations.
Underwriters must disclose potential conflicts of interest, such as third-party payments, values or credits, profit-sharing with investors, and credit default swaps. For example, it would be a violation of the rule for an underwriter to compensate an undisclosed third-party in order to secure municipal securities business, or for the underwriter to be compensated by an undisclosed third-party for recommending that party’s services or products to an issuer.
Underwriters who agree to underwrite transactions with retail order periods must honor those agreements. For example, underwriters cannot disregard rules for retail order periods by accepting or placing orders that do not satisfy state and local definitions of “retail.”
Underwriters are also reminded to refrain from giving inappropriate gifts, gratuities and non-cash compensation to issuer personnel. For example, underwriters should avoid lavish and excessive travel and meal expenses incurred during rating agency trips and closing dinners.
The notice, which applies only to negotiated underwritings and not competitive underwritings unless specified, becomes effective in August.Posted In Municipal Finance and Bonds
Updated Eligibility Criteria for New Markets Tax Credits Released
Last week, the Community Development Financial Institutions Fund (CDFI) began using updated census tract eligibility data that is based on the 2006-2010 American Community Survey (ACS). In 2005, the Census Bureau launched the ACS to replace the long-form census survey. ACS collects socioeconomic and housing information continuously from a national sample and provides a five-year average of information, as opposed to a single point-in-time estimate provided by a traditional census survey. Community Development Entities (CDEs) will be able to use the new data to determine whether Qualified Low Income Community Investments (QLICIs) are located in eligible census tracts.
CDFI announced that a contract for developing a new mapping system reflecting new program eligibility is expected to be executed by the end of the year. The new system will allow users to locate eligible census tracts for all of its programs, including NMTCs, Community Development Financial Institutions Program, Native American CDFI Initiatives Program, and Bank Enterprise Award Program, on a map and to code addresses to the new census tract boundaries. Currently, only updated eligibility criteria for the NMTC program is available.
CDFI has also released a list of 2010 census tracts that are eligible because they are located in high out-migration areas. A high out-migration area is one which has a net out-migration of residents of at least 10% of the population at the beginning of the measurement period, which is the 20 year period ending with the year in which the most recent census was conducted,. In Louisiana, Morehouse and Vernon Parish are identified as having eligible census tracts due to high out-migration.
CDFI recognizes that CDEs may have already started to structure investments based on 2000 census data. CDFI will allow current NMTC allocates to use either the new or old census data for transactions closing between May 1, 2012 and June 30, 2013.
Recent Municipal Securities Rulemaking Board Notices
The Municipal Securities Rulemaking Board (“MSRB”) has been quite active lately. On April 3, 2012, the MSRB issued a notice encouraging voluntary disclosure of bank loans by state and local governments on the MSRB’s Electronic Municipal Market Access (“EMMA”) website. EMMA is an information facility of the MSRB for receiving electronic submissions of official statements, initial offering prices and other information about new issues as well as on-going municipal securities disclosures. The MSRB noted that the increased use of bank loans to meet funding needs by state and local governments concerns regulators and market participants because information about such bank loans (and the impact of those loans on a government’s outstanding debt) may not be disclosed until audited financial statements are released. The MSRB stated that the availability of timely information about bank loan financings is important for market transparency and the promotion of a fair and efficient market. Voluntary submission of relevant information through EMMA would provide bondholders, investors and other market participants with timely access to key information useful in assessing current holdings and in making investment decisions.
On April 10, 2012, the MSRB requested comments on draft amendments to MSRB Rules G-32 and G-34 that would allow underwriters to satisfy certain reporting requirements by submitting information to the New Issue Information Dissemination Service (“NIIDS”) operated by the Depository Trust and Clearing Corporation. NIIDS is a centralized system for collecting standardized electronic information on new issue securities from underwriters and disseminating it to market participants. When EMMA was first conceived, the MSRB planned to integrate NIIDS data submitted pursuant to Rule G-34 into EMMA such that it would also satisfy the data submission requirements under Rule G-32. Although the information submitted pursuant to Rule G-32 is less extensive than that under Rule G-34, the MSRB recognized that integration would prove beneficial because duplicative data entry is time consuming and increases the possibility of error. Streamlining the submission burden will result in improved data quality on EMMA and throughout the marketplace and will allow underwriters and enforcement agencies to concentrate compliance activities on this single information pipeline. Comments are due by May 8, 2012.
These recent notices demonstrate the MSRB’s continued efforts to increase transparency and improve the quality and quantity of information in the marketplace.
Standard & Poor's Proposes New Methodology for Rating Local Governments' General Obligation Debt
Last week, Standard & Poor’s (“S&P”) proposed a new methodology for rating local governments’ general obligation debt. It would not apply to special purpose districts, such as school districts, or revenue bonds. The new methodology uses the same general factors currently used to rate local government debt, but provides increased transparency regarding how S&P’s ratings are derived.
Under the new methodology, ratings will be based on the assessment of the local government’s scores on the following criteria: institutional framework (10%), economy (30%), management (20%), budgetary flexibility (10%), budgetary performance (10%), liquidity (10%), and debt and contingent liability (10%). Scores under each of these criteria are brought together to give an indicative rating from 1 (strongest) to 5 (weakest). Then, certain positive or negative overriding factors are considered, including weak liquidity or management, high income levels, low real estate market value per capita, sustained high fund balances, lack of willingness to pay obligations, and large or chronic negative fund balances, to reach the final rating.
S&P estimates that, under the new methodology, 65% of its ratings would be unchanged, 32% would increase, and 3% would decrease. S&P requested comments on the new methodology through June 6th.
Non-profits: Opportunity to Finance Acquisition or Renovation of Property Using Qualified 501(c)(3) Bonds
Non-profit organizations have the opportunity to finance the acquisition or renovation of property where they do their good works using qualified 501(c)(3) bonds, which often provide better financing terms and rates than those available from traditional lenders. The proceeds of qualified 501(c)(3) bonds may also be used by the non-profit organization for working capital or to acquire other kinds property, within certain limits.
To be eligible for qualified 501(c)(3) bond financing, the non-profit organization must be exempt from taxation under section 501(a) of the Internal Revenue Code. The organization also must qualify as an “exempt organization” under section 501(c)(3). The organization must maintain its exempt status as long as the bonds are outstanding.
A non-profit organization that shares a building with a for-profit entity may still be eligible for qualified 501(c)(3) bonds. Such a “mixed use” or “multipurpose” facility may be financed in part with qualified 501(c)(3) bonds. The portion that is bond financed must be used by the exempt organization for its exempt purposes or by a governmental unit. The portion used by the private entity must be financed with taxable financing or sources other than bond proceeds. The allocations between the different uses of the facility must be made in proportion to the benefits derived, directly or indirectly, by the various users of the facility. The allocations of the bond proceeds and other sources of funds, and the use of the facility by various parties, must be reasonable and consistently applied.
At least 95% of the net proceeds of the bonds must be used to finance facilities owned and used by the exempt organization or a governmental unit for its related activities. As with other types of qualified private activity bonds, qualified 501(c)(3) bonds have some inherent private use. Use by an exempt organization in its related activities counts as a “good use.”
What about the other 5% of net proceeds? No more than 5% of the net proceeds of the bond issue may be used for any private business use, known as “bad use.” If the exempt organization uses the bond proceeds or bond-financed facilities in an unrelated trade or business activity, it is considered bad use. Costs of issuing the bonds are included in the 5% permitted private business use.
Although exempt organizations cannot use the bond-financed facilities for an unrelated trade or business, or “bad use,” they may contract with a private party to provide services, which may result in private business use. The typical example would be a management contract with a private party to operate a portion of the facility. Fortunately, the IRS has provided safe harbors regarding management service contracts.
With respect to debt service on qualified 501(c)(3) bonds, no more than 5% of the payment of the debt service on the bonds may be directly or indirectly:
- secured by an interest in property used or to be used for a private business use, or
- secured by payments in respect of such property, or
- to be derived from payments in respect of property, or borrowed money, to be used in a private business.
Of course, interest and principal payments made by the exempt organization are not included, because the exempt organization is treated as a governmental unit.
Qualified 501(c)(3) bonds are not subject to state volume limits, but the aggregate outstanding face amount of qualified 501(c)(3) bonds that may be allocated to an exempt organization is limited to $150 million. Capital expenditures incurred by a 501(c)(3) organization may be financed with proceeds of tax-exempt bonds without regard to the $150 million limitation. And, this limitation does not apply to qualified hospital bonds.
The general rules regarding private activity bond rules are applicable to qualified 501(c)(3) bonds, including limits on the average maturity of the bonds, limits on the types of facilities that can be financed, notice and approval requirements, limits on costs of issuance, change in use rules, arbitrage and rebate rules, and advance refunding rules.
Final Targeted Populations Rule Released
The American Jobs Creation Act of 2004 amended the New Markets Tax Credit program (“NMTC”) to provide that certain targeted populations may be treated as low-income communities. The Internal Revenue Service provided some guidance on the topic in Notice 2006-60 and in proposed regulations that were issued in 2008. Following a lengthy comment period, final regulations were released in December of 2011.
Under the final regulations, the term “targeted populations” means individuals, or an identifiable group of individuals, including an Indian tribe, who (a) are low-income persons; or (b) otherwise lack adequate access to loans or equity investments. An individual is considered to be low-income if the individual’s family income, adjusted for family size, is not more than (a) 80% of the metropolitan area median family income or (b) the greater of 80% of the non-metropolitan area median family income or 80% of the statewide non-metropolitan area median family income.
In order for an entity to be treated as a qualified active low-income community business for targeted populations, it must satisfy one of the following criteria: (1) at least 50% of the entity’s total gross income for any taxable year is derived from sales, rentals, services, or other transactions with individuals who are low-income persons (the gross income requirement); (2) at least 40% of the entity’s employees are individuals who are low-income persons (the employee requirement); or (3) at least 50% of the entity is owned by individuals who are low-income persons (the ownership requirement). The determination of whether an employee is a low-income person is made at the time of the hire and is effective throughout the time of employment, without regard to any increase in the employee’s income after the time of hire. The determination of whether an owner is a low-income person is made at the time the qualified low-income community investment is made, or at the time the ownership interest is acquired, whichever is later, and is effective throughout the time the ownership interest is held by that owner.
Unfortunately, the regulations only address the low-income aspect of targeted populations. With respect to individuals or groups that lack adequate access to loans or equity investments, the IRS invited taxpayers to submit additional comments identifying individuals or groups that may be considered to lack such access along with the reasons for the classification. The IRS further requested suggestions for ways to limit additional targeted population rules so that the purposes of the targeted populations provisions are not abused.
The final regulations became effective December 5, 2011 and can be found in Vol. 76, No. 233 of the Federal Register.
GO Zone Bonds Approved for Current Refundings
The Gulf Opportunity Zone Act of 2005 (the “Act”) added several new sections to the Internal Revenue Code that provide certain tax benefits for affected hurricane disaster areas. Section 1400N(a) authorized the issuance of Qualified Private Activity Bonds (“Qualified Bonds”) to finance the construction and rehabilitation of residential and nonresidential property located in the Gulf Opportunity Zone (“GO Zone”). The Act gave private business owners and corporations the opportunity to borrow capital at favorable tax-exempt rates to acquire, construct, reconstruct or renovate qualified property in the GO Zone. The deadline for the issuance of GO Zone Bonds was extended through the end of 2011. However, the Act did not address the current refunding of Qualified Bonds after the applicable issuance deadline had passed.
In a refunding, an issuer sells bonds and uses the proceeds to redeem outstanding debt that typically has higher interest rates. In a current refunding, the issuer uses the refunding bond proceeds to redeem the outstanding debt within 90 days. On December 23, 2011, the Internal Revenue Service released an advance copy of Notice 2012-3, which provides guidance on current refunding of outstanding prior issues of Qualified Bonds, including GO Zone Bonds and Hurricane Ike Bonds.
A current refunding of Qualified Bonds that meets the conditions of Notice 2012-3 may be issued after the applicable deadline and still be treated as Qualified Bonds. The conditions include that the original Qualified Bonds must have been issued before the deadline for the issuance of such bonds. The issue price of the current refunding issue must be no greater than the outstanding stated principal amount of the refunded bonds. And, the current refunding issue must meet all applicable requirements for the issuance of tax-exempt private activity bonds, including that the average bond maturity must be no longer than 120 percent of the average reasonably expected economic life of the facilities financed or refinanced.
Additionally, as long as the original Qualified Bonds satisfied the designation requirement, no further designation or official state or local governmental action is required for a current refunding of such bonds.
Notice 2012-3 will appear in Internal Revenue Bulletin 2012-3, dated January 17, 2012.Posted In Business and Corporate , Construction Law , Hurricane Katrina , Louisiana In General , Municipal Finance and Bonds , New Orleans/Louisiana Recovery , State and Local Taxation
IRS Releases Private Letter Ruling Addressing Mixed-use Output Facility and Tax-exempt Bonds
The Internal Revenue Service (the “Service”) released a Private Letter Ruling (“PLR”) earlier this year addressing private business use of a mixed-use output facility and whether tax-exempt bonds could be used to finance improvements to the facility. The Issuer, which is a political subdivision of a state, owns electric generation, transmission and distribution facilities that are managed by a non-governmental electric cooperative (“NGEC”) pursuant to several contractual arrangements. Under a power sales contract, the Issuer has the right to schedule or take the portion of power generated by the facility equal to the percentage of the facility’s net rated capacity reserved by Issuer for that year. If the Issuer does not schedule or take all the output from its reserved portion of the facility’s net rated capacity, it must offer the unused output to the NGEC before offering to third parties. The governing body of the Issuer establishes and approves the rates for power produced from Issuer’s reserved net rated capacity of the facility and sold to the Issuer’s customers. Under an operating agreement with the NGEC, the Issuer reimburses the NGEC for its share of the actual and direct expenditures incurred by the NGEC in the operation and maintenance of the facility. The Issuer’s share of expenses is determined by its reserved percentage of the facility’s net rated capacity.
The Issuer expects to finance capital improvements to the facility, the costs for which will be allocated between the Issuer and the NGEC on the basis of their respective reservations and allocations of the net rated capacity of the facility. The Issuer intends to issue tax-exempt governmental bonds to finance its portion of the improvement costs. The Issuer represents that, while the bonds are outstanding, it will (a) maintain its reserved net rated capacity and (b) take a sufficient amount of the total energy generated at the facility so that no more than 10% of the facility’s improvements that are to be financed with the bonds will used for private business use.
The Service first considered whether the facility constitutes public utility property under Section 168(i)(10) of the Code. “Public utility property” means property used predominantly in the trade or business of the furnishing or sale of electrical energy (among other things) if the rates for such furnishing or sale have been established or approved by a state or political subdivision thereof. Because the facility consists of property used predominantly in the trade or business of furnishing or sale of electricity and the Issuer establishes and approves rates for electricity provided by the Issuer from its reserved share of the net rated capacity of the facility, then, to the extent of such share, the facility constitutes public utility property.
Under the Advance Notice of Proposed Rulemaking, 2002-2 C.B. 685 (the “Advance Notice”), tax-exempt bonds may be issued to finance costs attributable to the government use portion of a mixed-use output facility, plus any costs attributable to permitted de minimis private business use. The government use portion is determined based on the percentage of the available output of the facility that is not used for a private business use. The available output is determined by multiplying the number of units produced or to be produced by the facility in one year by the number of years in the measurement period of that facility for that bond issue. The number of units produced or to be produced in one year is determined by reference to nameplate capacity or its equivalent, which is not reduced for reserves, maintenance or other unutilized capacity. See Treas. Reg. Sec. 1.141-6 and 7.
The Service noted that the allocation of output based upon reserved net rated capacity under the power sales contract is the equivalent of an allocation based on available output of the facility. Thus, the government use portion of the facility consists of the Issuer’s portion of the net rated capacity of the facility less the NGEC’s purchases of non-scheduled or taken output and any other private business use. Therefore, the Issuer may issue bonds in an amount to cover the costs of the government use portion of the facility and its improvements plus any costs attributed to permitted de minimis private business use.
Additionally, since only actual and direct expenses incurred in the operation and maintenance of the Issuer’s share of the facility are payable to the NGEC for its management of such share under the operating agreement, the operating agreement is not treated as a management contract that results in private business use by the NGEC. See Treas. Reg. Sec. 1.141-3.
Posted In Municipal Finance and Bonds , Utilities Regulation
Revisions to IRS Form 8038-G
In September 2011, the IRS revised Form 8038-G, which is the information return that issuers must file in connection with issuance of tax-exempt governmental obligations. The revised form includes two new questions regarding whether the issuer has effected written procedures to verify compliance with certain rules.
First, on line 43, the IRS asks whether “the issuer has established written procedures to ensure that all nonqualified bonds of this issue are remediated according to the requirements of the Code and Regulations…” If the issuer takes a deliberate action after the issue date that causes the conditions of the private business tests or the private loan financing test to be met, then such issue is also an issue of private activity bonds. Section 1.141-2(d)(3) of the Regs defines “deliberate action” as any action taken by the issuer that is within its control regardless of whether there is intent to violate such tests. Section 1.141-12 sets forth the conditions for taking remedial actions that prevent an action that otherwise causes an issue to meet these tests from being classified as a “deliberate action.”
Next, on line 44, the IRS asks whether “the issuer has established written procedures to monitor the requirements of Section 148.” Section 148 addresses arbitrage, yield restriction, and rebate requirements.
These new questions do not create new rules or impose new obligations on issuers. However, issuers’ failure to implement written procedures could increase the risk of audit.
The Internal Revenue Code restricts the amount of private business use that can occur in facilities financed with tax-exempt bond proceeds, but there are a number of exceptions to this general rule. Certain facilities (“exempt facilities”) that are privately used are eligible for tax-exempt bond financing if they benefit the general public or implement specific Congressional policies. In August, the IRS issued final regulations for determining whether a facility is a “solid waste disposal facility” that qualifies for tax-exempt bond financing.>> Continue Reading Posted In Business and Corporate , Environmental Litigation and Regulation , Louisiana In General , Municipal Finance and Bonds
Louisiana Approved for SSBCI Funding
Last week, the United States Department of the Treasury announced the approval of applications from Louisiana and a handful of other states for State Small Business Credit Initiative (“SSBCI”) funding. The SSBCI is an important component of the Small Business Jobs Act (“the Act”) that was signed into law last fall. This funding is intended to provide support to state-level programs, and is designed to generate billions in additional small-business lending and help create new private sector jobs.
Under the Act, these states’ programs may receive a total of $360 million in SSBCI funds. Under the SSBCI, states must demonstrate a reasonable expectation that each $1 in federal funding will generate a minimum of $10 in new private lending. Accordingly, this $360 million allocation is expected to support more than $3.6 billion in new private lending.
The states approved for SSBCI funding are: Alabama ($31.3 million), Florida ($97.7 million), Idaho ($13.2 million), Iowa ($13.2 million), Louisiana ($13.2 million), Mississippi ($13.2 million), Ohio ($55.1 million), Oregon ($16.5 million), Tennessee ($29.7 million), Texas ($46.6 million), Virginia ($18.0 million), and Washington, D.C. ($13.2 million).
The Louisiana Department of Economic Development will use its funds to support two existing programs: the Louisiana Small Business Loan Guarantee Program and the Louisiana Seed Capital Program, a venture capital program.
In today’s political and economic environment, in which public resources available for infrastructure development and maintenance are increasingly scarce, Public-Private Partnerships (PPPs) offer a welcome alternative to traditional financing and operation models. A PPP is a contractual agreement between a public agency (federal, state or local) entity and a private sector entity to deliver a service or facility for public use. The Louisiana Supreme Court has recognized the public benefits of PPPs, finding that “public-private partnerships that take advantage of the special expertise of the private sector are among the most effective programs to encourage and maintain economic development, and that it is in the best interest of the State and its local governments to encourage, create, and support public-private partnerships.” See Board of Directors of Indus. Devel. Bd. of City of Gonzales, Louisiana, Inc. v. All Taxpayers, Property Owners, Citizens of City of Gonzales, 938 So.2d 11, 17 (La. 2006).>> Continue Reading Posted In Business and Corporate , Construction Law , Louisiana In General , Municipal Finance and Bonds , New Orleans/Louisiana Recovery