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Government Finance Officers Push for Changes to Exempt Bond Regs

MAR. 1, 2019

Government Finance Officers Push for Changes to Exempt Bond Regs

DATED MAR. 1, 2019
DOCUMENT ATTRIBUTES
  • Authors
    Brock, Emily S.
  • Institutional Authors
    Government Finance Officers Association
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2019-13884
  • Tax Analysts Electronic Citation
    2019 TNT 69-35
    2019 EOR 5-53
  • Magazine Citation
    The Exempt Organization Tax Review, May. 2019, p. 395
    83 Exempt Org. Tax Rev. 395 (2019)

March 1, 2019

Internal Revenue Service
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044

RE: CC:PA:LPD:PR (REG-141739-08)/Reissuance of State or Local Bonds

Dear Sir or Madam:

The Government Finance Officers Association represents over 20,000 public finance officials throughout the United States. Our members are responsible for the issuance and management of tax-exempt bonds that are issued to serve the capital needs of their communities. IRS and Treasury regulations related to the reissuance of these bonds is of great interest to state and local governments and entities.

The IRS and Treasury have provided rules and guidance on reissuance matters for over thirty years. This includes the most recent 2008 guidance which assisted thousands of governments who were facing significant obstacles with getting bonds sold or resold during the Great Recession. While we appreciate the goals of this current proposed rules for reissuance, we would like to identify some key areas that are of concern to the issuer community.

Qualified Tender Option Bonds Should Be Allowed to be Sold at a Premium

We support the concept in the proposed rulemaking that allows issuers to remarket bonds without triggering a reissuance — for instance, change an interest rate mode from floating to fixed. However, the proposal would also place a condition that qualified tender bonds must be sold at par. The current rules and guidance allow these bonds to be sold at a premium without triggering a reissuance when changing to a fixed rate to maturity. We strongly suggest that prior to finalizing the rules that the IRS and Treasury maintain this key feature to help governments attract investors to ensure demand for these bonds. If qualified tender bonds are forced to be sold only at par to avoid a reissuance, demand will decrease and issuer costs will increase. Similarly, if a transaction does trigger a reissuance because they are sold at a premium, issuers would incur extra issuance costs. These extra costs on state and local governments and entities could easily be avoided by maintaining the provision allowing these bonds to be sold at a premium, as well minimize issuer's exposure to change in law.

The National Association of Bond Lawyers (NABL) has provided extensive comments on this topic in their submission to the proposed regulations. We strongly suggest that their comments be carefully considered, as they have the support of the GFOA in addition to the bond lawyer community.

Clarity of When a Reissuance Take Place

In addition to the selling qualified tender option bonds at a premium example noted above, the IRS and Treasury should look for ways to provide additional clarity of various circumstances when a reissuance occurs. Many in the tax-exempt bond community, including issuer's bond counsel, grapple at times with determining when a reissuance occurs. It would also be helpful if the final regulations included a provision that permitted issuers to treat a bond issued as reissued. Case in point — as state and local governments and entities continue to suffer the economic costs related to the loss of advanced refundings, many are looking for different ways to achieve the benefits that advance refundings provide, including interest savings for taxpayers. This includes executing “Cinderella” bond transactions where taxable advance refunding bonds convert to tax-exempt bonds at the time of the call date for the refunded bonds. Issuers, counsel and other market participants are spending arduous time working through ways to ensure that the transaction is a reissuance, often without success. Having the regulations allow issuers to elect to treat such transactions as a reissuance so as to result in tax-exempt current refunding bonds could ease the legal and issuance process and costs.

Change from LIBOR to SOFR Index Should Not Trigger a Reissuance

With the forthcoming dissolution of the LIBOR index, which will be replaced by the SOFR and/or other indexes, the issuer community is concerned with how this change will impact contracts used in variable rate and swap transactions, for example. Addendums to contracts where it is noted that the LIBOR index will be replaced with SOFR or another index, should NOT trigger a reissuance. Allowing for this flexibility will assist issuers and other market participants to avoid unnecessary and preventable debate and possible reissuance occurrences and costs. We suggest that the final regulations include a provision stating that replacing LIBOR with SOFR or another index does not trigger a reissuance. We note that a somewhat similar circumstance existed when the EURO replaced various European currencies. Treasury allowed for that replacement to occur without triggering a reissuance.

We appreciate the work of the IRS and Treasury on these important issues and would be happy to further discuss how the proposed rules would impact state and local governments and entities. Finally, we would like to reiterate our support for NABL's extensive comments related to the issues discussed above as well as other items in the proposed rules.

Sincerely,

Emily Swenson Brock
Director, Federal Liaison Center
Government Finance Officers Association
Washington, DC

DOCUMENT ATTRIBUTES
  • Authors
    Brock, Emily S.
  • Institutional Authors
    Government Finance Officers Association
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2019-13884
  • Tax Analysts Electronic Citation
    2019 TNT 69-35
    2019 EOR 5-53
  • Magazine Citation
    The Exempt Organization Tax Review, May. 2019, p. 395
    83 Exempt Org. Tax Rev. 395 (2019)
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