SENATE BILL REPORT

SHB 739

BYHouse Committee on Trade & Economic Development (originally sponsored by Representatives 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

Rereferred House Committee on Ways & Means/Appropriations

Senate Committee on Commerce & Labor

Senate Hearing Date(s):March 31, 1987; April 3, 1987

Majority Report:     Do pass as amended.

     Signed by Senators Warnke, Chairman; Smitherman, Vice Chairman; Anderson, Lee, Sellar, Vognild, West, Williams, Wojahn.

Senate Staff:Bill Lynch (786-7427)

                April 3, 1987

AS REPORTED BY COMMITTEE ON COMMERCE & LABOR, APRIL 3, 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:

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 a calendar 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 fees must reflect the costs to be incurred in administering the program. The Department is also given the authority to adopt, by rule, future amendments to the federal tax code.

SUMMARY OF PROPOSED SENATE AMENDMENT:

The appropriation to the Department of Community Development is deleted.

Fiscal Note:    available

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

Senate Committee - Testified:   Chuck Clarke, Department of Community Development; Kim Herman, Housing Finance Commission