On November 9, 2017, the Chairman of the Senate Finance Committee (the “Chairman”) released a conceptual outline of the Chairman’s tax reform proposal. Unlike the Tax Cuts and Jobs Act, H.R. 1, which was voted out of the House Ways and Means Committee this week (“H.R. 1”), the Chairman’s mark retains the ability of issuers and borrowers to benefit from private activity bonds (such as qualified 501(c)(3) bonds and exempt facility bonds). H.R. 1 would eliminate the federal tax exemption on private activity bonds issued after December 31, 2017. Private activity bonds have traditionally funded a significant number of diverse projects each year, including airport renovations, affordable housing complexes and facilities at nonprofit universities, hospitals and senior living communities.
Both H.R. 1 and the Chairman’s mark eliminate the ability for any tax-exempt bond (including governmental bonds issued by states and local municipalities) to be advance refunded after December 31, 2017.
If the Chairman’s proposal holds and the federal tax exemption on private activity bonds will continue, certain types of private activity bonds, such as exempt facility bonds (like bonds for airports and mass commuting facilities) would benefit from H.R. 1 and the Chairman’s mark, which both eliminate the alternative minimum tax (“AMT”). Currently, the interest on these bonds is included in the calculation of the AMT.
In addition, the Chairman’s proposal differs from H.R. 1 in its treatment of tax-exempt bonds to finance professional sports stadiums. H.R. 1 would eliminate the federal tax exemption on new bonds issued for this purpose; the Chairman’s mark would keep current law unchanged on this point.
The Chairman’s mark is scheduled for mark-up by the full Senate Finance Committee the week of November 13, 2017, at which time amendments to the proposal may be made. H.R. 1 has been passed by the House Ways and Means Committee and is expected to be presented to the House members for a vote (without the possibility of further amendment) prior to the Thanksgiving recess.
Municipal market participants considering an advance refunding should be advised that, even if tax reform is not accomplished by year’s end, references in H.R. 1 to a December 31, 2017 cut-off with respect to the ability to issue advance refunding bonds may inhibit the ability of issuers and borrowers to close an advance refunding after December 31, 2017.
The legislative text of H.R. 1 is available here. The Senate Finance Committee Chairman’s proposal, in plain language but without legislative text, is available here.