Proposed regulations would update and streamline the public approval requirements for tax-exempt private activity bonds issued by state and local governments. The proposals reflects statutory changes. In addition, they reduce the administrative burden on issuers by providing a more flexible public approval process. Moreover, they recognize advances in technology and electronic communications that may facilitate more streamlined procedures.
Two previous sets of proposed regulations from 2008 are withdrawn. However, the new proposed regulations:
(1) generally retain the streamlined information requirements and post-issuance flexibility found in the 2008 proposed regulations. However, they also offer additional post-issuance flexibility.
(2) adopt and expand the permitted methods for giving notice of a public hearing from the 2008 proposed regulations. However, they retain the 14-day notice period presumed reasonable under the existing regulations.
Host and issuer approvals
The governmental unit that issues private activity bonds (the issuer) and the governmental unit with jurisdiction over the location of the financed project (the host) must both approve the issue. The proposed regs generally adopt the rules for these approvals from the existing regulations, with some revisions to address statutory changes. These include, additional rules for approvals of bonds for airports, high-speed rail facilities, qualified scholarship funding corporations, and volunteer fire departments.
The proposed regs also eliminate the host-approval requirements for mortgage revenue bonds, qualified student loan bonds, and qualified 501(c)(3) bonds used to finance working capital expenditures.
Public notice and public hearing
The governmental unit that approves the bonds generally must first hold a public hearing after reasonable public notice, usually by newspaper publication. The proposed regs expand the permitted methods of providing reasonable public notice to include: (1) radio or television broadcast; (2) postings on a governmental unit’s public website; and (3) alternative methods permitted under a general state law for notices of public hearings.
Public approval requirements
The requirements for reasonable public notice and the public approval (public approval information) are refined as follows:
(1) “Project” is redefined as one or more capital projects or facilities to be financed with an issue that are located on the same site, or adjacent or proximate sites used for similar purposes; mortgage loans financed by mortgage revenue bonds; student loans financed by qualified student loan bonds; and working capital expenditures financed by qualified 501(c)(3) bonds.
(2) The requirements for a description of the type and use of the financed project are relaxed, so that an exempt facility may be identified by category, and other bonds may be identified by the type of bond and the use of the project.
(3) The issuer may name the true beneficial party of interest as an alternative to the legal owner of user of the project.
(4) The street address requirement for a project may be satisfied by a description of boundary streets or other geographical boundaries; and a consolidated description may be used for a project on the same site or on adjacent or proximate sites.
(5) The public approval information requirements are modified for mortgage revenue bonds, qualified student loan bonds, and qualified 501(c)(3) bonds that finance pooled loan financings.
Further, the rules are clarified for an insubstantial deviation from the public approval information requirements that does not invalidate the public approval. Post-issuance public approvals may cure certain substantial deviations.
Finally, the proposed regs would apply to bonds issued pursuant to a public approval that occurs on or after the date that is 90 days after they are published as final regulations. However, issuers may apply them in whole to bonds that are issued pursuant to a public approval that occurs on or after September 28, 2017, and before they are published as final.
Comments and requests for a public hearing must be received at the IRS by December 27, 2017. They may be hand-delivered or mailed to IRS, CC:PA:LPD:PR (REG-128841-07), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044, or submitted electronically at www.regulations.gov (IRS REG 128841-07).
Proposed Regulations and Withdrawal of Notice of Proposed Regulations, NPRM REG-128841-07