Take Advantage of 501(c)3 Conduit bonds

March 2018 | By Daniel Burns

H.R. 1 of the 115th Congress, also known as the Tax Cuts and Jobs Act, was signed into law on December 22, 2017. When it was first introduced on November 2, 2017, it caught the public finance world off-guard by eliminating the tax-exempt status of qualified private activity bonds, or PABs (sometimes referred to as 501(c)3 or conduit bonds). But after a month and a half of debate, the dust settled and the tax-exempt status remains effective. That’s good news for government entities.

If your city is not familiar with a PAB issuance, here’s a quick summary of the transaction:

  • A City issues bonds to a financial institution, the interest on which is tax-exempt income.
  • The proceeds pass through the City to the nonprofit, which enjoys a lower interest rate on the loan.
  • The transaction is secured by the Nonprofit’s property or revenue.
  • The City does not incur any debt or liability, but is able to charge an administrative fee for the issuance.

This transaction really is a win for all parties. Your City should make sure it has an ordinance or policy in place to explain the procedure and set the fee for issuing such bonds.


Questions about this topic?

If you have any questions regarding this topic or other public finance issues, please contact Andy Pratt, or Dan Burns today.


ECKBERG LAMMERS' PUBLIC FINANCE TEAM

Eckberg Lammers provides unique value to the municipalities we represent by offering complete Public Finance services, including bond counsel, economic development and redevelopment assistance, and tax increment finance (TIF) counsel. Andy Pratt is the lead attorney on the Public Finance Team.


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