When Congress passed the Tax Cuts and Jobs Act (TCJA) late last year, a much-heralded provision of TCJA was the reduction in the federal corporate income tax rate, from 35% to 21%. However, that reduction has had unforeseen consequences for the municipal bond industry. The reduction in the tax rate is expected to result in efforts by banks to increase the interest rates charged by banks for current outstanding loans to municipalities and 501(c)(3) tax-exempt organizations. Whether a bank may increase the interest rate on a loan will depend on the language of the loan documents. Even if the loan documents permit the bank to unilaterally increase the interest rate, some banks may be hesitant to do so, as the request is may be received poorly, potentially jeopardizing the bank’s ongoing relationship with the borrower. Continue Reading Continuing Disclosure in the Municipal Bond Market: Importance of Compliance
On April 11, 2018, the Internal Revenue Service published Revenue Procedure 2018-26, a copy of which can be accessed here, which provides new guidance to issuers on the availability of remedial actions to preserve the tax-advantaged status of their bonds in the face of a violation of the tax rules. Rev. Proc. 2018-26 applies to tax-advantaged bonds generally, i.e. traditional tax-exempt bonds under section 103 of the Code, as well as federally taxable bonds that carry with them tax credit or direct pay subsidy benefits. Continue Reading IRS Issues Guidance on Remedial Actions for Tax-Advantaged Bonds
On March 22, 2018, a cyberattack hit the City of Atlanta. A ransomware program infected the City’s computer systems. That malware encrypted the city’s files, and officials believe it may also have provided unauthorized access to the City’s data to a group of hackers (although, the City says it has not yet “seen any evidence that personal information has been misused as a result”). The hackers demanded a ransom payment of six bitcoin (valued at approximately $50,000). Continue Reading Atlanta Cyberattack Shows Importance of Cybersecurity for Municipalities
On March 29, 2018, the National Association of Bond Lawyers (NABL) formally requested guidance from the IRS regarding the ability of municipal issuers to issue tax-exempt advance refunding bonds to refund taxable bonds after the enactment of the Tax Cuts and Jobs Act (TCJA). The request comes on the heels of public statements by Treasury and IRS representatives regarding their belief that notwithstanding the passage of TCJA, municipal issuers may continue to issue tax-exempt advance refunding bonds to refund taxable bonds, so long as the taxable bonds to be refunded are not tax-advantaged bonds such as Build America Bonds, and the refunding otherwise complies with the requirements of section 149 of the Code and the regulations thereto. Continue Reading NABL Requests IRS Guidance on Tax-Exempt Advance Refundings of Taxable Bonds
Sewage backups tend to make relationships between landowners and their municipal sewer authorities rather, well, messy. When property is impacted by a sewer authority’s negligence, landowners would typically find a remedy in a trespass action. However, a recent decision by the Commonwealth Court of Pennsylvania holds that repeated sewage backups may cause a de facto taking under the Pennsylvania Eminent Domain code, requiring compensation to the landowner. This is yet another area of concern and possible liability for municipal authority operators. Continue Reading Sewer Authorities Could Owe Compensation for Repeated Sewage Overflows
Across much of the United States, the number of municipalities imposing stormwater management fees upon property owners has increased dramatically in recent years. The rising prevalence of stormwater management fees has predictably led to local and state court challenges by businesses, as non-residential property owners are typically more severely impacted by stormwater management fees in comparison to residential property owners. Affected businesses have questioned whether parcel-based stormwater fees constitute legitimate fees for services rendered or are simply revenue-generating taxes in disguise.
State courts have issued conflicting rulings on this question. In the heartland, the Supreme Court of Missouri issued a 2013 decision striking down stormwater management fees and requiring municipalities to fund stormwater management programs through tax revenues. In the northeast, the Supreme Court of Maine conversely issued a 2012 decision affirming a stormwater management fee program as a fee for services rendered.
It now appears that Pennsylvania jurisdictions will have an opportunity to weigh-in on this critical debate. In January 2018, the Chester Business Association filed injunctions seeking to block imposition of a stormwater management fee proposed by the Stormwater Authority of Chester. Similarly, an attorney and property owner in the city of New Castle filed a complaint with the Lawrence County Court of Common Pleas requesting that the court void stormwater management fees to be collected by the New Castle Sanitation Authority.
While the outcome of these cases remains uncertain, any decisions in these jurisdictions may not be dispositive as to rulings in other Pennsylvania jurisdictions, as stormwater management fees are complex and can be developed based on a variety of different models. For both municipalities and businesses impacted by stormwater management fees, effective stakeholder engagement can ensure that legitimate stormwater management fees serve their intended purpose and avoid overly burdening property owners. Attorneys at McNees can assist with review, analysis, and if necessary, litigation of stormwater management fees.
On February 12, 2018 the Trump Administration released its long-awaited Infrastructure Plan. A copy of the legislative outline for the Plan can be accessed here. The Plan calls for $1.5 Trillion in new infrastructure investment over the next ten years – although only $200 Billion of that will be in the form of new federal spending.
Included in the $200 Billion of new federal spending is a $6 Billion expansion of tax-exempt Private Activity Bonds. The Plan would:
- Broaden the types of projects which qualify for financing through PAB’s: The Plan would add several new types of projects which would qualify for tax-exempt financing, including stormwater and flood control projects, rural broadband service facilities, and environmental remediation projects for Brownfield and Superfund sites, as well as expand the types of projects permitted to be financed under existing project categories.
- Liberalize governmental ownership requirements: Under current law, certain PAB-financed projects must be owned by the government; an existing safe harbor permits certain leases with a term of up to 80% of the economic life of the project. The Plan would modify the safe harbor to permit leases with a term of up to 95% of the economic life of the project.
- Remove volume caps: The Plan would remove existing volume caps on PAB issuance imposed under Sections 142 and 146 to permit unlimited volume of PAB’s issued for public purpose infrastructure projects.
- Add new remedial action provisions: The Plan would amend the change-in-use provisions contained in Section 150 of the Code (and apparently overturn existing Treasury regulations on remedial action) to preserve the tax-exempt status of governmental bonds, specifically with regard to leases of projects of projects financed by governmental bonds.
- Eliminate the AMT penalty for purchasers of PAB‘s: The Plan would eliminate PAB’s as an item of tax preference for purposes of the Alternative Minimum Tax imposed on individuals.
The Plan put forth by the Administration is simply an outline of what it would like to see in legislation that has yet to be drafted. There is no guarantee that all of the above-described proposals will make their way into an actual bill, let alone be approved by Congress. We expect that there will be much discussion and debate in the coming weeks and months as Congress considers the Administration’s Plan and prepares formal legislation on the topic.
Stay tuned for more updates as the story unfolds!
On December 4, 2017, the Supreme Court of the United States heard oral arguments in Christie v. National Collegiate Athletic Association, No. 16-476, regarding the constitutionality of the Professional and Amateur Sports Protection Act (“PASPA”), a federal law that prohibits states from authorizing and regulating sports wagering. The case could have significant implications for legal and regulated gambling across the country, including Pennsylvania, where the General Assembly recently passed legislation that would authorize sports wagering in the Commonwealth if PASPA is found to be unconstitutional or is repealed by Congress. Continue Reading Sports Wagering in Pennsylvania Could Soon Become a Reality
On December 20, 2017 Congress passed the Tax Cuts and Jobs Act (TCJA). The legislation was signed by President Trump on December 22, 2017 and many key provisions of the law became effective on December 31, 2017.
The purpose of the TCJA was to stimulate economic growth through a major overhaul of the Internal Revenue Code. One of the signature elements of the TCJA is the reduction of the federal corporate tax rate from 35% to 21%. While this may be good news to the business community generally, the rate reduction presents potential unique problems for conduit borrowers, such as 501(c)(3) organizations, and lenders under tax-exempt bank loan structures. Continue Reading Review and Analysis of Tax-Exempt Loan Documents Following Tax Cuts and Jobs Act
The Financial Services and Public Finance Group of McNees Wallace & Nurick LLC is pleased to announce that we are now able to assist issuers and obligated person clients in complying with their continuing disclosure requirements under SEC Rule 15c2-12.
Effective January 2, 2018, Penny Pollick has joined our team as a Continuing Disclosure Specialist. Penny, together with our public finance professionals, can offer such continuing disclosure-related services as creating and maintaining compliance templates for operating and financial data, undertaking continuing disclosure filings for issuer and obligated parties and creating model policies and procedures. Additionally, we will monitor continuing disclosure trends, review and provide advice on current continuing disclosure obligations and provide continuing disclosure training as requested and required.
We will also provide continuing disclosure compliance review services for underwriters and financial advisors to determine whether remedial action and disclosure of past filing failures is necessary prior to the publication of preliminary offering documents.
If interested in learning more about these services, please contact Penny at firstname.lastname@example.org.