Clarification on Changes to Federal BABs
The Government Finance Officers Association (GFOA) has provided some clarification with respect to how recent legislative activity affects the Build America Bonds (BABs) program and other tax credit bond programs.
The HIRE Act (HR 2847), which was signed into law by President Obama on Thursday, March 18, ONLY does the following:
For the four tax credit bond programs that have been in place for many years, the Act allows the tax credit that traditionally has gone to investors to be able to become a subsidy payment to the issuer. Amounts are as follows:
Qualified School Construction Bonds (QSCBs), 100 percent
Qualified Zone Academy Bonds (QZABs), 100 percent
Clean Renewable Energy Bonds (CREBs) , 70 percent
Qualified Energy Conservation Bonds (QECBs), 70 percent
Previously, investors received 100 percent tax credit for both the QSCB and QZAB programs, and 70 percent for CREBs and QECBs. The difference in the HIRE Act is that this tax credit can be received by the issuer as a subsidy payment for the lifetime of the bonds instead of being given to the investor. Nothing in the HIRE Act changes the regular BABs program.
The legislation currently on the House floor (HR 4849) would extend the regular BABs program for three years (until March 31, 2013), but changes the subsidy rate each year:
currently, 35 percent
2011, 33 percent
2012, 31 percent
2013, 30 percent (only until 3/31/2013)
HR 4849 also extends another provision from ARRA for another year (until 12/31/12) – exempting the AMT from applying to interest on private activity bonds. The bill also creates a new program exempting water and sewer private activity bonds from being exempt from a state’s Private Activity Bond (PAB) volume cap. Unfortunately, the bank qualified debt provision was NOT included in the bill, and GFOA will need to work with the Senate to have it included.
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Paul McIntosh is Executive Director of the California State Association of Counties. He can be reached at pmcintosh.at.counties.org. |
House Votes to Extend Bond Programs – On March 24, the House passed the Small Business and Infrastructure Act of 2010 (H.R. 4849) by a vote of 246 to 182. Among its provisions is one that will extend the popular Build America Bonds program through April 1, 2013. However, the current direct federal subsidy rate of 35 percent of interest costs will be gradually lowered. In 2011, the rate drops to 33 percent; in 2012, 31 percent; and in 2013, 30 percent.
The bill also extends the Recovery Zone Bond program for an additional year and makes additional allocations based on state unemployment rates.
In addition, the bill also exempts interest from certain tax-exempt bonds from the Alternative Minimum Tax for an additional year.
Finally, the bill also includes a one-year extension of the Temporary Assistance for Needy Families Block Grant’s Emergency Contingency Fund (TANF-ECF) through September 30, 2011. The bill provides $2.5 billion for the ECF extension and allows states to draw down the equivalent of 30 percent of their TANF funds for FY 2011.