HOUSE BILL REPORT

HB 739

BYRepresentatives Vekich, Schoon, Wineberry and P. King; by request of  Department of Community Development

Providing for the allocation of the private activity bond ceiling.

House Committe on Trade & Economic Development

Majority Report:     The substitute bill be substituted therefor and the substitute bill do pass.  (19)

     Signed by Representatives Vekich, Chair; Wineberry, Vice Chair; Amondson, Beck, Belcher, Braddock, Cantwell, Doty, Grant, Hargrove, Holm, Kremen, McLean, McMullen, Moyer, Rasmussen, Schoon, B. Williams and J. Williams.

House Staff:Bonnie Austin (786-7107)

Rereferred House Committee on Ways & Means/Appropriations

Majority Report:     The substitute bill by Committee on Trade & Economic Development as further amended by Committee on Ways & Means be substituted therefor and the substitute bill do pass.  (23)

     Signed by Representatives Locke, Chair; Allen, Belcher, Braddock, Brekke, Bristow, Ebersole, Fuhrman, Grant, Grimm, Hine, Holland, McLean, McMullen, Nealey, Niemi, Peery, Sayan, Silver, L. Smith, H. Sommers, Sprenkle and B. Williams.

House Staff:    Susan Kavanaugh (786-7145)

AS REPORTED BY COMMITTEE ON WAYS & MEANS/APPROPRIATIONS

MARCH 7, 1987

BACKGROUND:

The federal Tax Reform Act of 1986 made two major changes in law relating to tax-exempt private activity bonds.  First, the act reduced by 50 percent the annual state bond ceiling for tax-exempt private activity bonds.  This reduction severely limits the volume of tax-exempt bonds that can be issued in Washington to finance industrial development, housing, student loans and public facilities with significant private participation.

Second, changes were made to the types of bonds that must be included under the ceiling.  Bonds to finance housing, such as those issued by the state Housing Finance Commission, are now included under the ceiling.  Public facility bonds with less than 25 percent but greater than 10 percent private participation are also added. This has expanded the number of projects included under the ceiling.

These changes require the development of a new state formula for allocating access to the available financing capacity under the ceiling.  Since the projected need for private activity bonds in 1987 is between $700-750 million, and the ceiling is set at approximately $330 million, policy decisions have to be made regarding the allocation of the state ceiling among housing bonds, student loan bonds, exempt facility bonds, public utility bonds, and small issue industrial development bonds.  Additionally, an allocation process must be established and an allocating agency to administer this process must be designated.

SUMMARY:

SUBSTITUTE BILL AS AMENDED:  Initial allocations of the state bond ceiling are established for 1987, 1988, 1989, and 1990 and thereafter for housing bonds, student loan bonds, small issue bonds, exempt facility bonds, and public utility bonds.  Initial allocations are expressed as percentages of the annual state ceiling and may be adjusted to reflect carryforward amounts.  A 5 percent remainder is available for granting allocations for redevelopment bonds or other bonds.

After September 1, unused allocations may be reassigned to other bond use categories.  Prior to the end of the year, any unused portion of the ceiling will be granted to one or more issuers as a carryforward amount, which must be used within three years.

The allocation system shall be administered by the department of community development.  Criteria are specified for the allocation, reallocation, or assigning of carryforward amounts. No issuer may issue bonds under the state ceiling unless granted a certificate of approval from the department.  Issuers may apply for an allocation up to 90 days before year begins.  Any denied request will be retained for possible allocation later in the year. Other procedural requirements are detailed.

The department shall submit an annual report to the legislature summarizing bond allocations and a biennial report detailing allocation usage and policy considerations.

The governor is given interim authority to allocate the ceiling in the event that changes occur in the federal law when the legislature is not in session.  Any allocations made prior to the effective date of this act pursuant to an executive order shall remain in effect.

The Department of Community Development shall establish a fee schedule to support the administration of the bond ceiling allocation program.  The department is also given the authority to adopt, by rule, future amendments to the federal tax code.

SUBSTITUTE BILL COMPARED TO ORIGINAL:  Unused allocations may be reassigned after September 1, rather than July 1.  Additional criteria the department shall consider in making allocations include:  1) the Community Economic Revitalization Board's requirements under the umbrella bond program for small issues bonds; and 2) the percentage of the community that will benefit from a project and the unique issuance needs of large scale projects for exempt facility and redevelopment bonds.

SECOND SUBSTITUTE COMPARED TO FIRST SUBSTITUTE:  The $100,000 appropriation to the Department of Community Development is removed.

CHANGES PROPOSED BY COMMITTEE ON WAYS & MEANS/APPROPRIATIONS:  Second substitute proposed.

Fiscal Note:    Attached.

Effective Date:The bill contains an emergency clause and takes effect immediately.

House Committee ‑ Testified For:     (Trade & Economic Development)  Don Cowles, Economic Development Executives of Washington; Jerry Rupke, Grant, Chelan & Douglas County Public Utility Districts; Kim Herman, Washington State Housing Finance Commission and Stan Finkelstein, Association of Washington Cities.

(Ways & Means/Appropriations)  Kim Herman, Washington State Housing Finance Commission.

House Committee - Testified Against: (Trade & Economic Development)  None Presented.

(Ways & Means/Appropriations)  None Presented.

House Committee - Testimony For:     (Trade & Economic Development)  This allocation formula and procedure is the compromise reached by all the issuers and agencies involved in the negotiating process over the past four months.  Although each category of issuers does not get enough of the ceiling to meet their demand, it is a fair distribution of the available ceiling.

(Way & Means/Appropriations)  Allocation of the bond cap was made through careful negotiation among all interested parties.

House Committee - Testimony Against: (Trade and Economic Development)  None Presented.

(Ways & Means/Appropriations)  None Presented.