Today, President Obama will sign into law H.R. 1, the "American Recovery and Reinvestment Act of 2009" generally referred to as the Stimulus Act. Summarized below are provisions of the Stimulus Act that authorize and expand existing authority for state and local government tax-exempt and tax credit bonds, and provisions intended to stimulate market demand for these bonds. More detailed information regarding these provisions is set forth in the Tables linked to this alert.
In brief, the Stimulus Act includes the following:
Provisions Designed to Stimulate Market Demand for Tax-Exempt Bonds
- Increases the qualified tax-exempt obligation (QTEO or bank-qualified bond) limit from $10 million to $30 million for bonds issued in 2009 and 2010 and, in the case of qualified 501(c)(3) or pool bonds, applies this limit to the 501(c)(3) or pool borrower.
- Allows a bank to exclude non-QTEOs issued in 2009 and 2010 up to a limit of 2 percent of the bank's assets from the fraction that limits the bank's interest expense deduction.
- Eliminates from treatment as an alternative minimum tax (AMT) preference item interest on tax-exempt private activity bonds that are:
- (i) new money bonds issued in 2009 and 2010 or (ii) refunding bonds issued in 2009 and 2010 to refund new money or refunding bonds issued in 2004 through 2008.
- Eliminates from a corporation's adjusted current earnings for AMT purposes interest on tax-exempt bonds that are: (i) new money bonds issued in 2009 and 2010 or (ii) refunding bonds issued in 2009 and 2010 to refund new money or refunding bonds issued in 2004 through 2008.
Expansion of Existing Tax-Favored Bond Provisions
- Adds general issuance authority for
- New Clean Renewable Energy Bonds – $1.6 billion.
- Qualified Energy Conservation Bonds – $2.4 billion.
- Expands issuance authority for Qualified Zone Academy Bonds of up to $1.4 billion in each of 2009 and 2010.
- Broadens the small-issue industrial development bond provisions for bonds issued between February 18, 2009 and December 31, 2010 to allow (i) 100-percent financing of directly related and ancillary facilities connected to a core manufacturing facility and (ii) financing of a facility that "manufactures" intellectual property as a manufacturing facility.
- Authorizes exempt facility financing of high-speed intercity rail facilities for trains that are reasonably expected to attain top speeds of 150 mph, rather than consistently operating at 150 mph.
New Tax-Favored Bond Provisions
- Authorizes new tax credit Qualified School Construction Bonds, with $11 billion of issuance authority in each of 2009 and 2010. The tax credits available to the holders of these bonds are intended to be a complete substitute for interest payments by the issuer.
- Authorizes the issuance in 2009 and 2010 of new tax credit Build America Bonds (BABs). BABs are bonds that could be issued as tax-exempt governmental use bonds, but for which the issuer has elected to forgo the tax exemption of interest and either to allow (i) the holders to receive tax credits equal to 35 percent of interest payments on the BABs or (ii) if eligible, the issuer to receive credits in the form of payments from the US Treasury in that amount.
- Authorizes new Recovery Zone Bonds to be issued in 2009 and 2010, subject to a national limit allocated among the states and large municipalities. Recovery Zone Bonds are of two types: Recovery Zone Economic Development Bonds (a special type of "issuer-credit" bonds similar to BABs) and Recovery Zone Facility Bonds (a broad new type of tax exempt private activity bonds).
- Authorizes new Tribal Economic Development Bonds, which are tax exempt governmental use bonds that can be used for construction projects on an Indian reservation.
- Expands the amount of available New Markets Tax Credits investment authority for 2008 and 2009 from $3.5 billion to $5 billion.
- Requires the payment of a prevailing wage on projects financed by certain tax credit bonds authorized or expanded by the Stimulus Act.
- Allows a regulated investment company (i.e., a mutual fund) to pass through tax credits on tax credit bonds to the company's shareholders.
- Delays for an additional year (from 2010 to 2011) the onset of a provision requiring 3-percent withholding on payments by the US government to its contractors.