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HomeMy WebLinkAboutMINUTES - 04161985 - 2.5 ' iTo:' BOARD OF SUPERVISORS Contra FROM: Phil Batchelor, County Administrator Costa -DATE: April 10, 1985 @ Cour �y SUBJECT: Legislation: Federal Income Tax Proposals SPECIFIC REQUEST(S) OR RECOMMENDATION(S) & BACKGROUND AND JUSTIFICATION RECOMMENDATION• Adopt a position of opposition to any federal income tax proposal which eliminates the federal income tax exemption of interest on certain bonds used to finance such activities as multi-family rental housing, mass commuting facilities, sewage or solid waste facilities, air or water pollution control facilities, commercial and industrial facilities and nonprofit health care facilities, and direct the County Administrator to communicate the Board' s position and concerns to the President of the United States, the Secretary of the Treasury, the Chairmen of the House Ways and Means and Senate Finance Committees, and this County' s Congressional Delegation. BACKGROUND: See attached letter from Orrick, Herrington and Sutcliffe. CONTINUED ON ATTACHMENT: X YES SIGNATURE: / Gr RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE APPROVE OTHER SIGNATURE(S) Z&, ACTION OF BOARD ON Apri 1 16, 1985 APPROVED AS RECOMMENDED OTHER VOTE OF SUPERVISORS �— UNANIMOUS (ABSENT I HEREBY CERTIFY THAT THIS IS A TRUE AYES: NOES: AND CORRECT COPY OF AN ACTION TAKEN ABSENT: ABSTAIN: AND ENTERED ON THE MINUTES OF THE BOARD OF SUPERVISORS ON THE DATE SHOWN. County Administrator CC: Auditor-Controller ATTESTED April 16 , .19.85 Treasurer-Tax Collector Director, Community Development PHIL BATCHELOR, CLERK OF THE BOARD OF Public Works Director SUPERVISORS AND COUNTY ADMINISTRATOR Health Services Director M382/7-83 BY DEPUTY LAW orFlces Contra Costa C011nty ORRICK, HERRINGTON b SUTCLIFFE RECE=IVED 600 MONTGOMERY STREET SAN FRANCISCO.CALIFORNIA 94111 FEB 2 Z 1985 TELEPHONE (415) 392-1122 TELECOPIER ;415; 954-3759 TELEX 70-3520 Office of Coon': - Administrator NEW YORK. NEW YORK 10036 SACRAMENTO,CALIFORNIA 95614 SAN JOSE.CALIFORNIA 95113 1211 AVENUE OF THE AMERICAS 520 CAPITOL MALL 55 ALMADEN BOULEVARD TELEPHONE ;212,704.9660 TELEPHONE (916:447.7752 TELEPHONE(408)296-8600 February 19, 1985 MEMORANDUM TO ISSUERS OF TAX EXEMPT BONDS Re: Tax Simplification Proposals DID YOU KNOW THAT THE TAX SIMPLIFICATION PROPOSALS CONSTITUTE A DIRECT THREAT TO THE POWER OF ALL PUBLIC ENTITIES TO BORROW MONEY FOR MOST PURPOSES? Each of the so-called "tax simplification" proposals, Bradley-Gephardt, Kemp-Kasten, Rangel and Treasury' s proposal, would eliminate the exemption from federal income taxes of interest on what such proposals term "private activity" or "non-governmental" bonds, including bonds issued to finance: owner-occupied housing multifamily rental housing sports facilities conventions or trade show facilities airports, docks, wharves parking facilities mass commuting facilities sewage or solid waste facilities local electric energy or gas facilities air -or water pollution control facilities water facilities hydroelectric facilities district heating or cooling facilities industrial parks commercial and industrial facilities student loans nonprofit health care facilities nonprofit educational facilities While some of these may merit the label "private activity, " most are really "public enterprise" or "public purpose" involving essential or traditional governmental services. Also included are any other obligations more than 1% of the' proceeds of which are used directly or indirectly by any person other than a . state or local government. Even publicly owned and operated facilities could fail this test if there is a rental, management, output, take-or-pay, I ORRICK, HERRINGTON b SUTCLIFFE put-or-pay or other use contract between the issuer and a private entity. It does not matter whether debt service is paid by private entities or solely from general tax dollars, special assessments or other public funds. A general obligation bond issued to finance a city hall would not be tax exempt if 1% of the space in the city hall were rented to a newsstand-or the phone company for telephone stalls. If these rules become law, what portion of bonds issued by public entities today could continue to be issued on a tax exempt basis? By one estimate, it could be as little as 10%. If the interest on bonds issued to finance a facility is not tax exempt, it is the residents of the issuer or the usersof the facility who must pay the additional interest expense or the additional expense of financing other than with bonds, or the facility cannot be acquired or constructed at all . MANY ENTITIES NOW ENTITLED TO ISSUE TAX EXEMPT BONDS WILL LOSE THAT POWER! Only state and local governments would be able to issue bonds the interest on which is exempt from federal income taxes. These would include only entities with a substantial and independent power to tax, power of eminent domain or police power. Most agencies and authorities, and all nonprofit corporations, do not possess such powers. THE PROPOSAL CONTAINS A NUMBER OF OTHER RESTRICTIONS COSTLY TO ISSUERS. Issuers would be required to rebate all arbitrage and would not be permitted to recover costs of issuance, underwriter' s discount, credit enhancement fees or other costs; temporary period rules would be tightened; early issuance would be prohibited; advance refundings would be prohibited; and all bonds would be required to be reported to the IRS. These provisions would make borrowing more costly, place tremendous cash flow restrictions on issuers, impair their ability to time the issuance of bonds to minimize interest rates and make it impossible to restructure debt or to get out from under high interest rates and restrictive covenants for a number of years. WHY ARE WE SENDING YOU THIS LETTER? Most of those who would be affected have no present notion of what the Treasury and others (in both political parties) want to do to them under the heading "Tax Reform for Fairness, Simplicity, and Economic Growth. " 2 ORRICK, HERRINGTON & SUTCLIFFE Orrick., Herrington: & Sutcliffe believes that it has a responsibility, as the largest and most active bond counsel firm in California and one of the nation' s leading legal experts on public finance, to inform public entities that these tax simplification proposals contain provisions that may be .harmful to their economic and political health; i . e . , to their ability to finance or to induce private enterprise to finance necessary or desirable projects at acceptable cost. WHAT CAN YOU DO? We urge you (or your appropriate department or agency) to write the President or members of Congress, particularly members of the House Ways and Means Committee or Senate Finance Committee. A list of California' s Congressional delegation and of the membership of the aforementioned committees is enclosed. We suggest that the letters cite specific projects, jobs and revenues that would not have been or will not be created, or would have been or will be lost, and of the additional costs that would have been or will be borne by residents and facility users, if the Treasury has its way. The letters also may remind the Administration and Congress of the promises of their various spokesmen last year that if volume caps limiting the amount of private activity bonds were enacted (which they were) , tax exempt bonds would be left alone for a couple of years in order to assess the effect of such change. In addition to letters, calls to or meetings with members of Congress also might prove effective. It is not necessary to support every type of bond or issuer threatened by these proposals. It is important, however, not to wait too long. Hearings are expected to commence soon, and the Treasury has taken the high ground by labeling all of the bonds referred to herein as "private purpose" and "non-governmental" and by describing tax exemption as "outmoded" and a "privilege" instead of a Constitutional or essential governmental right. Do not rely on groups like the National League of Cities, which is reported to be considering endorsing the Treasury proposal . We have not enclosed a form letter because form letters are often ignored, but we would be pleased to provide whatever assistance you may request and, of course, to answer any . questions you may have about any of the matters discussed herein. THE PUBLIC FINANCE DEPARTMENT ORRICK, HERRINGTON S SUTCLIFFE 3 _.