As we prepare to say goodbye to 2017 and welcome a new year, we thought we’d take a moment and revisit some of our favorite stories from the last twelve months that we’ve followed on the McNees Public Sector Blog.
- A kinder, gentler Internal Revenue Service? Perhaps in response to the Trump Administration’s “less is more” approach to regulation, 2017 saw several announcements from the IRS that were favorably received by the municipal bond industry. In January the IRS published new guidance on management contracts involving bond-financed facilities, which reintroduced old concepts following a less-than-favorable response to a prior announcement. In June, new IRS regulations on the determination of issue price went into effect, and despite some initial headaches, the new regulations appear to be working well and have been incorporated by underwriters and bond counsel. In October, the IRS published new proposed regulations interpreting the public hearing requirement for private activity bonds, which as promised featured a long-hoped-for “remedial action” option. And finally, an early Christmas present for bond lawyers everywhere: in October the IRS announced that it was withdrawing its much-despised “political subdivision” proposed regulations.
- While the IRS appeared to get President Trump’s “less regulation” message, the SEC and MSRB continued their aggressive enforcement efforts. In March the SEC voted to formally propose amendments to Rule 15c2-12 to beef up required disclosures by municipalities in connection with bank loans. And in August, the MSRB issued a warning to municipal issuers to avoid involvement in the selection of underwriter’s counsel. All indications are that the SEC and MSRB will continue to aggressively police the municipal bond industry in 2018.
- The Pennsylvania budget situation continued to be a mess. Governor Wolf’s budget proposal featured a variety of tax increases, which were soundly rejected by the Republican-led legislature. A spending plan was quickly agreed to, but without the revenue needed to pay for it. The final spending plan again avoids broad-based tax increases (at the relief of many) in favor of one-time revenues from a securitization of Tobacco Settlement Funds, among other things.
- For local governments, high fixed costs and declining revenues continued to be a problem in 2017. Generating revenue through asset monetization remained an option for struggling municipalities faced with severe blight and new government mandates, including stormwater management.
- And finally, Tax Reform! The end of 2017 saw the passage of the Tax Cuts and Jobs Act, the first successful attempt at comprehensive tax reform since the passage of the 1986 Code. A number of versions of the bill were introduced, some of which would have been devastating on the municipal bond industry. We wrote about the impact of the final legislation on the municipal bond industry here.
To all our readers – thanks for visiting! And may you all have a happy and prosperous new year!
– Tim Horstmann