Publications. "New Tax-Exempt Financing for Privately Owned or Used Facilities in Areas of Texas and Louisiana

Transcription

1 Publications Site Requirements "New Tax-Exempt Financing for Privately Owned or Used Facilities in Areas of Texas and Louisiana Affected by Hurricane Ike" Fulbright Briefing Stephen Watson December 2008 Overview Companies that suffered a Hurricane Ike-related loss and certain other private entities may qualify for new taxexempt financing for facilities located in areas of Texas and Louisiana affected by Hurricane Ike, whether or not those facilities qualified for tax-exempt financing under prior law, but at the expense of foregoing newly authorized bonus depreciation that otherwise may be available for the facilities.[1] To preserve the opportunity for tax-exempt financing of capital expenditures paid before bonds are issued, a governmental bond issuer must take certain action before or immediately after the expenditures are paid. The Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (the Act ) authorizes a new type of taxexempt private activity bond ( Hurricane Ike bonds ) for the areas of Texas and Louisiana affected by Hurricane Ike. The bonds may be issued by the States of Texas and Louisiana and their political subdivisions to finance eligible facilities for the benefit of businesses and residents in the Hurricane Ike disaster area. On November 25, 2008, the Internal Revenue Service released Notice , which identifies the counties and parishes that comprise the Hurricane Ike disaster area and specifies population figures for determining the total authorized amount of the bonds. Based on those population figures, the total authorized amount of Hurricane Ike bonds is $1,863,270,000 for Texas and $383,852,000 for Louisiana. Under the Act, which was (1 of 10)12/15/ :39:42 AM

2 enacted as part of the financial rescue legislation signed by the President on October 3, 2008, Hurricane Ike bonds must be issued before January 1, Eligible Facilities The following types of capital expenditures for facilities located in the Hurricane Ike disaster area (described below) are eligible for financing with Hurricane Ike bonds if the private entity that will own or otherwise use the facilities either (1) suffered a loss in a trade or business from Hurricane Ike or (2) is designated by the Governor of the State in which the project is located as a person carrying on a trade or business replacing a trade or business with respect to which another person suffered such a loss: Nonresidential real property: Capital expenditures to acquire, construct, reconstruct, or renovate nonresidential real property (including fixed improvements associated with the property), such as buildings used for offices, retail stores, or manufacturing; Public utility property: Capital expenditures to repair or reconstruct public utility property damaged by Hurricane Ike (for this purpose, public utility property means property used predominantly in the trade or business of the furnishing or sale of: (1) electrical energy, water, or sewage disposal services; (2) gas or steam through a local distribution system; (3) telephone services, or other communication services if furnished or sold by the Communications Satellite Corporation for purposes authorized by the Communications Satellite Act of 1962; or (4) transportation of gas or steam by pipeline; but only if, in each case, the rates for the furnishing or sale, as the case may be, have been established or approved by a State or political subdivision, by any agency or instrumentality of the United States, or by a public service or public utility commission or other similar body of any State or political subdivision); and Residential rental property: Capital expenditures for qualified residential rental projects otherwise eligible for tax-exempt financing, except that tenant income requirements are relaxed to the following (2 of 10)12/15/ :39:42 AM

3 levels: (1) at least 20 percent of the units are occupied by individuals whose income is 60 percent or less of area median income; or (2) at least 40 percent of the units are occupied by individuals whose income is 70 percent or less of area median income. In addition, Hurricane Ike bonds may be issued to finance mortgages for single-family housing under the rules in the Internal Revenue Code applicable to qualified mortgage bonds, with certain modifications. The Act modifies the qualified mortgage bond requirements for Hurricane Ike bonds by eliminating the first-time homebuyer requirement, relaxing purchase price and income limits, applying certain less-stringent rules for targeted-area residences, increasing the maximum amount of a qualified home improvement loan from $15,000 to $150,000, and relaxing the requirements for qualified rehabilitation loans.[2] At least 95 percent of the net proceeds of Hurricane Ike bonds issued for single-family housing must provide financing for homeowners who suffered damages to their principal residences from Hurricane Ike. Designations and Volume Limits A bond is eligible for tax exemption as a Hurricane Ike bond only if the Governor (in the case of Texas) or the State Bond Commission (in the case of Louisiana) designates the bond as a qualified Hurricane Ike disaster area bond. The Act requires these designations to be made on the basis of providing assistance to areas in the order in which the assistance is most needed. The maximum amount of Hurricane Ike bonds that may be designated by the Governor of Texas is $1,863,270,000 and by the Louisiana State Bond Commission is $383,852,000. Neither office has yet established procedures for allocating the maximum amount to financings. Hurricane Ike bonds are not subject to the separate per-state volume limits that apply to most taxexempt private activity bonds. Eligible Geographic Areas A facility financed with Hurricane Ike bonds must be located in the Hurricane Ike disaster area, which comprises the following areas in the States of Texas and Louisiana: (3 of 10)12/15/ :39:42 AM

4 Texas Counties: Angelina, Austin, Brazoria, Chambers, Cherokee, Fort Bend, Galveston, Greg, Grimes, Hardin, Harris, Harrison, Houston, Jasper, Jefferson, Liberty, Madison, Matagorda, Montgomery, Nacogdoches, Newton, Orange, Polk, Rusk, Sabine, San Augustine, San Jacinto, Shelby, Smith, Trinity, Tyler, Walker, Waller, and Washington Counties. Louisiana Parishes: Acadia, Allen, Beauregard, Calcasieu, Cameron, Iberia, Jefferson, Jefferson Davis, Lafourche, Livingston, Orleans, Plaquemines, Sabine, St. Martin, St. Mary, St. Tammany, Tangipahoa, Terrebonne, Vermilion, and Vernon Parishes. Official Intent Requirement Hurricane Ike bonds are subject to the official intent requirement that applies to other tax-exempt private activity bonds. Consequently, an expenditure paid before the issue date of Hurricane Ike bonds generally will be eligible for financing with the bonds only if, before or not later than 60 days after the expenditure is paid, the State or local governmental unit that will issue the bonds adopts a resolution or other official intent declaring its intent to reimburse the expenditure with bond proceeds. We can assist clients in securing official intent resolutions. Miscellaneous Requirements and Terms The following additional requirements and terms apply to Hurricane Ike bonds: Ineligible facilities: The bonds may not finance movable fixtures or equipment. In addition, no proceeds of the bonds may be used to provide an airplane, skybox or other private luxury box, health club facility, private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other facility used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises. (4 of 10)12/15/ :39:42 AM

5 Alternative minimum tax: Unlike most tax-exempt private activity bonds, interest on Hurricane Ike bonds is not a specific item of tax preference for purposes of the alternative minimum tax. Two-year spending exception to rebate requirement: Unlike most tax-exempt private activity bonds, the two-year spending exception to the arbitrage rebate requirement is available for Hurricane Ike bonds. Limitations on recycling of principal repayments: Except to the limited extent permitted under the qualified mortgage bond provisions, repayments of principal on financing provided by Hurricane Ike bonds may not be used to provide additional financing. Purchases of existing buildings: Proceeds of Hurricane Ike bonds may be used to purchase an existing building for a business use only if the purchaser incurs qualifying rehabilitation expenditures equal to at least 50 percent of those proceeds. Restrictions on bonus depreciation: Bonus depreciation authorized by the Act is not available for property financed with Hurricane Ike bonds. This article was prepared by Steve Watson (swatson@fulbright.com or ) from Fulbright s Public Finance Practice Group. If you have any questions about this recent development, please feel free to contact one of the Fulbright attorneys listed below. Austin Joyce R. Bode, , jbode@fulbright.com Patrick Lewis O Daniel, , podaniel@fulbright.com Dallas Joyce R. Bode, , jbode@fulbright.com (5 of 10)12/15/ :39:42 AM

6 Houston Fredric A. Weber, , Los Angeles Richard L. Kornblith, , New York Stephen J. Watson, , San Antonio George W. Scofield, , James P. Plummer, , Washington, D.C. Stephen J. Watson, , Fulbright & Jaworski s Public Finance Practice Group Fulbright & Jaworski s Public Finance Practice Group collaborates with clients to help them achieve their objectives in the municipal securities marketplace. Our municipal securities practice annually ranks as one of the most active in the nation. In 2007, Fulbright & Jaworski ranked 6th in the nation as bond counsel helping to raise capital in more than 300 municipal securities offerings. Our attorneys have extensive experience as counsel to issuers of tax-exempt obligations and as counsel to their underwriters, credit enhancers, derivatives dealers and liquidity providers. Issuers of tax-exempt obligations look to the Public Finance attorneys at Fulbright & Jaworski as bond, disclosure, swap counsel and general counsel for: States and territories (6 of 10)12/15/ :39:42 AM

7 Higher education facilities Municipalities Student loans Counties Housing Schools Land development infrastructure Special purpose districts Environmental facilities Correctional facilities Economic and industrial development Health care facilities Special facilities: sports stadiums and convention centers Public-private partnerships Public power [1] Facilities, other than qualified residential rental projects, financed with Hurricane Ike bonds generally are (7 of 10)12/15/ :39:42 AM

8 subject to the alternative depreciation system--with typically a longer recovery period--rather than the general rules under the accelerated cost recovery system, to the extent those general rules otherwise would apply. [2] A legislative technical correction or guidance from the Internal Revenue Service may be needed to clarify that the special rules for qualified rehabilitation loans apply to repairs of damage caused by Hurricane Ike IRS Circular 230 Disclosure To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or tax-related matter[s]. This publication has also been posted to these related sites: Aerospace - Industry Agriculture - Industry Alumni Austin Automotive - Industry Banking and Finance - Industry Biotechnology - Industry Business Services - Industry Chemicals - Industry Computer Hardware, Software and Services - Industry Construction and Building Materials - Industry (8 of 10)12/15/ :39:42 AM

9 Consumer Products - Industry Corporate, Securities, and Transactions Dallas Denver Education - Industry Electronics and Other Technology - Industry Energy and Utilities - Industry Families, Individuals and Estates - Industry Food, Beverage and Tobacco - Industry Government - Industry Health Care Products and Services - Industry Houston Insurance - Industry Leisure and Entertainment - Industry Los Angeles Manufacturing - Industry Metals and Mining - Industry Minneapolis New York Nonprofit Organizations - Industry Personal Services - Industry Professional Services - Industry Public Finance Publishing and Media - Industry (9 of 10)12/15/ :39:42 AM

10 Real Estate - Industry Retail - Industry San Antonio St. Louis Telecommunications - Industry Transportation - Industry Washington, D.C. Waste Management - Industry Wholesale - Industry back top (10 of 10)12/15/ :39:42 AM