FINAL BILL REPORT

SB 5197

C 330 L 01

Synopsis as Enacted

Brief Description:  Revising private activity bond provisions.

Sponsors:  Senators Winsley and Prentice.

Senate Committee on Labor, Commerce & Financial Institutions

House Committee on Capital Budget

Background:  The Tax Reform Act of 1986 defines private activity bonds (PABs) as those used to fund projects that contain more than 10 percent private participation.  Because of this private involvement, PABs are generally taxable.  However, if a project falls within one of the eligible categories established by federal law, and can demonstrate significant public benefit, the project may receive tax exempt status through an allocation of the state's bond cap.  The Tax Reform Act of 1986 established a cap on the dollar amount of tax exempt private activity bonds that states could issue, equal to $50 per state resident.  This year Congress amended that ceiling.  Beginning in 2001, the cap is $62.50 per capita, in 2002 $75 per capita, and the cap will be indexed each year thereafter.

States are free to allocate the total cap among issuers who develop eligible projects as each state sees fit.

Federal law established a dollar lifetime ceiling of $750 million for the category of "Public Utility."  That amount will be reached within the next few years, allowing for a possible reallocation of the issuing authority allocated to that category.

The current allocation was established in 1987 and provides as follows:

Housing                25%

Student Loans       15%

Exempt Facility     20%

Public Utility        10%

Small Issue            25%

Remainder and

     Redevelopment  5%

Summary:  The allocation among the several categories of issuers is changed as follows:

2001      2002 and    Alternative

thereafter Allocation

Housing       27.5%       30.0%       32.0%

Small Issue   24.5%       24.0%       25.0%

Exempt Facility 19.5%       19.0%       20.0%

Student Loans 14.5%       14.0%       15.0%

Public Utility   10.0%       10.0%       0.0%

Remainder and

  Redevelopment    4.0%        3.0%      8.0%

The "alternative allocation" occurs upon the earlier of (a) exhaustion of the public utility current lifetime ceiling ($750 million) or congressional increase thereof, or (b) waiver of that authority due to alternative federal authority that does not use a state volume cap.

The reallocations of the federal authorizations of $62.50 per capita in 2001, and $75 per capita in 2002 are adopted.  Future authorizations are indexed as allowed by federal law.

Votes on Final Passage:

Senate470

House     92 0 (House amended)

Senate    47 0 (Senate concurred)

Effective:  July 22, 2001