In this Week’s Monday Muni Minutes – Meet the Newest Bonds in Town…QPIBs, This Sugar is NOT Sweet and the State of Our Union….
CURRENT EVENTS
What’s New at the IRS/Treasury
Muni Market Participants Applaud QPIB, Water Proposals (B Buyer, January 16, 2015)
Move over BABs, CREBs & QZABs, because there just might be a new tax exempt bond in town – the QPIBs, or Qualified Public Infrastructure Bonds.
As part of the President’s State of the Union address this week, he will be unveiling the new proposed QPIB, as well as his thoughts on the new Water Finance Center, which would be created within the Environmental Protection Agency.
Both proposals drew applause from municipal market participants including rating agencies, bond dealers, issuers and agencies alike. One of the key aspects of both of these new proposals would be that they would utilize private investments, via what is commonly called the PPP or public private partnership model.
“We think this could be a low cost approach to stimulating much needed infrastructure investment,” said Standard & Poor’s managing director and analyst Robin Prunty in New York. “But there is a cost associated with it, and as a result, extensive deliberation in Congress is likely.”
The QPIB would be a hybrid between a government bond and a private activity bond, but would have fewer restrictions. It would not have issuance caps, not be subject to AMT, nor would it have the same private business use restrictions that are currently allocated to PABs.
The modifications to the PAB rules for QPIBs “will increase [their] impact as a permanent lower cost financing tool to increase private participation in building our nation’s public infrastructure,” the White House said in its fact sheet.
QPIBs could be used for most types of public transportation projects, as well as water and sewer – as long as they were publicly owned – even with long-term leases to private parties. They could not, however, be used to privatize projects.
Mike Nicholas, chief executive officer of the Bond Dealers of America, said, “The BDA is favorable to this proposal…However, the new QPIBs or any other component of the infrastructure financing proposal can’t lead to changes to the tax exemption for muni bonds or to structural change to municipal bond issuance which has worked efficiently to the benefit of issuers and taxpayers for 100 years,”
[Editor’s Note We ARE still in need of serious infrastructure investment, despite what was allocated to infrastructure via ARRA. Engaging innovative PPP options may be a viable alternative…but the question invariably arises, how will the tax effects of these proposals be paid for?]
NEW RESOURCE: For your Records
TEB Voluntary Closing Agreement Program: Relief from violation of qualified ownership and use requirements for qualified 501(c)(3) bonds.
While Over at the SEC…
SEC Asks Judge to Reinstate Settlements with Former Allen Park, Mich., Officials (B Buyer, January 12, 2015)
The SEC has asked the US District Court to reinstate settlements reached with former Allen Park officials, Gary Burtka, who was mayor, and Eric Waidelich, the city administrator.
The settlements stemmed from $31 million in fraudulent bond offerings in 2009 and 2010 for a failed movie theatre as well as failure to disclose the city’s financial condition.
In both cases, the men agreed to the settlements, including cease and desist orders barring them from further municipal activities – without admitting or denying guilt. Burtka, also agreed to pay a $10,000 fine.
Mark Zehner, deputy chief of the SEC enforcement division’s municipal securities and public pensions unit noted that the fraudulent offerings in question were competitively bid, so external finance team members had as little information as the investors.
He said, “The SEC took sworn testimony from close to two dozen witnesses, some on multiple occasions, and subpoenaed documents from scores of parties, including the city, the defendants, the financial advisor, bond counsel, underwriters, the city attorney, banks, public entities, and others.”
[Editor’s Note: This is one of the original cases whereby the SEC flexed new enforcement muscles, bringing personal liability in prosecuting public officials for wrongdoing in municipal finance by imposing permanent injunctions and civil penalties, both specifically authorized under the 1933 and 1934 Acts.]
Failed Sucralose Plant Bondholders Await Details on Settlement (B Buyer, January 15, 2015)
After weeks of court ordered mediation – with no agreement – and just as the jury was being seated… bond holders & Morgan Keegan came to a class action settlement agreement on $39 million dollars of defaulted bonds for a failed sucralose factory.
The plaintiffs alleged Morgan Keegan and Armstrong Teasdale mislead them and failed to review pertinent financial information in the bond offering. The suit further alleges the firm had no basis for believing that the information provided to them was correct.
Both firms allege proper due diligence, citing that the bonds were sold based on a Standard and Poor’s investment grade rating and that one of the company subsidiaries, Mamtek US, had provided an improper property valuation, which was ultimately to blame.
Mamtek later abandoned the factory and was forced in bankruptcy. This class action lawsuit was just one of several lawsuits that were filed in the wake of the bond default.
Cole, the former chief executive officer of Mamtek US, recently pleaded guilty to two criminal counts of securities fraud and one criminal count of theft under a plea deal with Missouri Attorney General Chris Koster for misusing some bond proceeds for personal gain and was sentenced to seven years in prison.
[Editor’s Note: Another reason why the SEC will likely continue to ramp up enforcement in 2015 – under its primary mission of protecting the retail investor due to fraudulent, improper or incomplete disclosure in offering documents. What do you think?]
OUT & ABOUT
Did you register for this webinar yet?
As shared last week: I don’t avidly promote many specific trainings, but this is one you surely don’t want to miss. As many of you know, I have worked with both Orrick and BLX for well over a decade.
Orrick is the nation’s leading bond & tax counsel and BLX is well-known for the quality of both their swap and arbitrage services. BLX was also actively engaged in MCDC calculations last year for both underwriters and issuers.
Title: Continuing Disclosure after MCDC
Hosted by: Bondbuyer Webinars,
Date: February 5, 2015, 12:00PM ET / 9:00AM PST
Signup: Continuing Disclosure after MCDC
The SEC’s Municipal Continuing Disclose Compliance Initiative has shone a spotlight on continuing disclosure. It signals aggressive enforcement by the SEC and raises the stakes for compliance by Issuers, Borrowers and Underwriters.
Topics to be addressed in the webinar include:
What have we learned about continuing disclosure from MCDC?
What should new official statements say about continuing disclosure compliance?
What should be considered in drafting new Continuing Disclosure Agreements?
What policies and procedures should issuers, borrowers and underwriters employ?
What tools and services are available to assist or monitor compliance?
Besides being great information….IT’S FREE!!
Conferences in early 2015:
The Bond Buyer’s National Outlook 2015 Conference, January 27, 2015 (Next week!)
Metropolitan Club, New York, NY
The Bond Buyer’s Texas Public Finance Conference, February 9-11, 2015
Omni Barton Creek Resort & Spa, Austin, TX
The Bond Buyer and BDA’s National Municipal Bond Summit March 1-3, 2015
The Westin Beach Resort & Spa, Fort Lauderdale, FL
Editor Commentary: The Debate about The State of Our Union?
Tomorrow night, we’ll all be watching closely – as for the first time in President Barack Obama’s presidency, he presents his State of the Union Address to the nation…surrounded by a Republican-controlled Congress. Let the Debate begin…
The President’s Top SOU Topics
Introduce a Tax credit for Working Couples:
- Both spouses must work
- Full credit available for couples earning less than $120,000
- Partial credit for couples earning up to $210,000
Require paid sick leave:
- Workers without a current sick leave allowance could get 7 days per year
- Federal Employees: 6 weeks new parent leave, plus 6 weeks to care for an ill relative
Expand child care tax credit:
- Credit for 50% of costs – up to $3,000 for pre-school aged children
- “streamline” as a single credit
Encourage higher education:
- American Opportunity Tax Credit increase from $1,000 to $1,500 and be permanent (expires 2017 now)
- He would also make it permanent; it is currently set to expire in 2017
Student Loans
- Simplify rules for Pell Grants and Taxes on Student Loan interest
- After 20 years on Pay As You Earn Loan Plans, loan is forgiven – student pays taxes on it
Expand the Earned Income Tax Credit:
- Eligible Low income earners without children get twice the amount as before
- Raise the income cap for an eligible worker
- Lower age of eligibility from 25 to 21
Encourage retirement saving:
- myRA – available this year
- Employers would need to offer IRAs and automatically enroll their employees
- More part-time employees would be eligible for IRAs
- Companies could get tax cuts as a result
Tax inheritances like other capital gains:
- Transfers of stocks, etc, would no longer qualify for a “step up in basis”
- Tax would be paid on appreciation
- Stocks donated to charity would be exempt
- Homes and small business transfers would also be exempt
- Also, the capital gains tax would increase from 20% to 28%
Other proposals:
- Make community college free for some students
- Increase internet speeds in rural areas
- Lower fees on government-backed mortgages
[Editor’s note: This is a fairly lengthy article, with a few other links to detail the free college tuition and faster internet proposals – you can read all of it here. It will be interesting to see how the SOU plays out…this is an extensive list of items – some with fairly hefty price tags.
As shared in the QPIB article above, how will all of this be paid for? In looking at the economic pie being sliced here…there are many new slivers being cut out, but little discussion on where the needed filling is coming from. I know, that naughty treasury/auditor/accountant “how does this pencil out” head of mine goes into overdrive!]
In closing, last week we held the first of three in our on-line webinar for PIC Essentials: The Audit-Proven Blueprint. Overcoming a couple of unexpected technical challenges, the IDR session was well received, with participants getting a couple of surprise bonuses with their replay over the weekend.
Members are looking forward to this week’s session, where we’ll dig more into the bond accounting as well as look at some streamlining techniques. If you need or want more help in any of these areas, we’d love to have you sign up…as it looks like we may need to plan for the next series!
We hope you found this week’s edition of the Monday Muni Minutes valuable and informative.
As always your comments are welcome…
To your compliance success,
Debbie
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