United States: Final Private Activity Bond Public Approval Regulations Streamline Notice Requirements

Last Updated: January 9 2019
Article by Christie L. Martin

On December 31, 2018, the Department of the Treasury and the Internal Revenue Service released final regulations (the "Final Regulations") relating to public approval requirements for tax exempt private activity bonds.  The Final Regulations update and streamline implementation of the public approval requirement for tax exempt private activity bonds provided in section 147(f) of the Internal Revenue Code and are largely an improvement over the existing regulations that date back to 1983.  

Timing and Dissemination of Reasonable Notice

The most significant improvements in the Final Regulations over the existing regulations and proposed regulations released in September 2017 ("Proposed Regulations") are in the required timing and methods of notice of public hearing.  In response to numerous comments received, the Final Regulations reduce the required notice period from 14 days to 7 days.  Notice is now presumed reasonable if given no fewer than 7 calendar days before the hearing. 

In addition to the newspaper and radio notices in the existing regulations, the Final Regulations also allow for postings on a governmental unit's public website and, in response to comments received, eliminate the requirement set forth in the Proposed Regulations for an alternative method of obtaining the information in a website notice.  In addition, the Final Regulations provide that public notice may be posted on the public website of either the issuer or the approving governmental unit.  

Content of Reasonable Notice

The content requirements for reasonable public notice in the Final Regulations are a mixed bag.  The public notice must include a general functional description of the project or projects, the maximum stated principal amount of bonds to finance each project, the name of the initial owner or principal user of the projects and a general description of the project locations.  The Final Regulations follow the Proposed Regulations in allowing the Issuer to describe the category of bonds being issued and the type and use of the project or projects rather than providing more specific project information.  For example, "exempt facility bonds financing an airport pursuant to section 142(a)(1) of the Internal Revenue Code", "qualified small issue bonds, as defined in section 144(a) of the Internal Revenue Code, financing a manufacturing facility " and "qualified 501(c)(3) bonds, as defined in section 145 of the Internal Revenue Code, financing a hospital facility and working capital expenditures" would all be sufficient project descriptions.  This eliminates the need for the detailed project descriptions that are currently used.

However, if an issue finances and/or refinances multiple projects, the notice and approval must include the maximum stated principal amount of bonds to be issued for each project and this has raised some issues, particularly for large system financings with many projects and many locations.  The Final Regulations generally retain the definition of "project" set forth in the Proposed Regulations and "project" generally means one or more capital projects or facilities, including land, buildings, equipment and other property, to be financed with an issue that are located on the same site or adjacent or proximate sites used for similar purposes.  In rejecting a commenter suggestion to allow an aggregate maximum amount to finance all projects of the issue, the Final Regulations note that Treasury and IRS "have determined that the relative principal amounts within an issue to be spent on each separate project are relevant information for this public approval process".  Interestingly, the Final Regulations add back a concept from the existing regulations that says projects on different sites may be treated as part of the same project if used in an integrated operation.  This had been eliminated from the Proposed Regulations as being too difficult to determine and will potentially be helpful for projects located at various sites.  It is unclear, however, how useful this provision will be given the clear description in the summary description that lumping multiple projects together is not giving adequate notice of scope of project and potential impact on a particular community.

The requirement to provide a maximum bond amount by project location may be particularly troublesome with refundings.  With bonds issued to refund bonds of many series that had themselves been issued to refinance many prior series, it gets very complicated to try to figure out amounts by project and location for each prior series.  A comment to allow a refunded bond issue to only provide an overall project refinancing amount was rejected.

Hearing

An in-person hearing is required.  Webinar or teleconference methods were rejected as being "not sufficiently reliable, publicly available, susceptible to public response or uniform in their features and operation".  A commenter's suggestion to allow issuers to cancel a hearing was also rejected.

Insubstantial Deviations and Curing Substantial Deviations

Like timing and dissemination of notice, the expanded description of what is an insubstantial deviation and the new ability to cure a potential substantial deviation with a subsequent approval are substantial improvements over the existing regulations.  A deviation in actual principal amount allocated for a project is insubstantial under the Final Regulations if it is no more than 10% greater than the maximum amount in the notice or is any amount less.  Overestimating the maximum principal amount of bonds allocated for each project should, therefore, be the norm.  In addition, any amount used to finance working capital directly associated with any project specified in the notice is an insubstantial deviation and any deviation in the name of an owner or user of the project named in the notice is an insubstantial deviation if the parties named in the notice and the actual parties are related parties on the issue date of the bonds.

All deviations that are not specifically treated as insubstantial deviations in the Final Regulations will need to be analyzed based on all the facts and circumstances.  In the event a deviation is determined to be substantial, a new public approval can cure the deviation.  In order to take advantage of the supplemental public approval, the issue must have had a valid public approval and the issuer must have reasonably expected there would be no substantial deviation on the issue date, the substantial deviation must be as a result of unexpected events or unforeseen changes in circumstances that occur after the issue date, and the supplemental public approval must be obtained prior to using proceeds of the bonds in a manner or amount not provided for in the original public approval.

Application Date

The Final Regulations apply to bonds issued pursuant to a public approval occurring on or after April 1, 2019. 

An issuer may apply the provisions related to deviations in public approval method in whole but not in part to bonds that are issued pursuant to a public approval that occurs prior to April 1, 2019.  However, in order to take advantage of the supplemental public approval, it appears that the original public approval would have to have met the requirements of the Final Regulations.  This will not always be the case, particularly for large system financings with projects at multiple locations that did not specify amounts by project in the original notice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
 
Email Address
Company Name
Password
Confirm Password
Country
Position
Industry
Mondaq Newsalert
Select Topics
Select Regions
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions