I

103D CONGRESS

1ST SESSION H. R. 3630

To amend the Internal Revenue Code of 1986 with respect to the treatment

of tax-exempt bonds.

IN THE HOUSE OF REPRESENTATIVES

NOVEMBER 22, 1993

Mr. COYNE (for himself, Mr. CARDIN, Mr. LEWIS of Georgia, Mr. NEAL of

Massachusetts, Mr. HOAGLAND, Mr. KOPETSKI, Mr. JEFFERSON, Mr.

BREWSTER, Mr. SHAW, and Mr. SUNDQUIST) introduced the following

bill; which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 with respect

to the treatment of tax-exempt bonds.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE;

4 TABLE OF CONTENTS.

5 (a) SHORT TITLE.—This Act may be cited as the

6 ‘‘Public Finance and Infrastructure Investment Act of

7 1993’’.

8 (b) AMENDMENT OF 1986 CODE.—Except as other9 wise expressly provided, whenever in this Act an amend-
2

•HR 3630 IH

1 ment or repeal is expressed in terms of an amendment

2 to, or repeal of, a section or other provision, the reference

3 shall be considered to be made to a section or other provi4 sion of the Internal Revenue Code of 1986.

5 (c) TABLE OF CONTENTS.—

Sec. 1. Short title; amendment of 1986 code; table of contents.

Sec. 2. Definition of private activity bonds.

Sec. 3. Simplification of arbitrage rebate.

Sec. 4. Increase in small issuer exemption from pro rata allocation of interest

expense of financial institutions to tax-exempt interest.

Sec. 5. Indexation of volume cap.

Sec. 6. Clarification of investment-type property.

Sec. 7. Distressed community economic development bonds.

6 SEC. 2. DEFINITION OF PRIVATE ACTIVITY BONDS.

7 (a) REPEAL OF 5 PERCENT UNRELATED AND DIS8 PROPORTIONATE PRIVATE USE TEST.—Subsection (b) of

9 section 141 (relating to private business tests) is amended

10 by striking paragraph (3).

11 (b) REPEAL OF LOWER PRIVATE BUSINESS TEST

12 FOR CERTAIN OUTPUT FACILITIES.—Subsection (b) of

13 section 141 (relating to private business tests) is amended

14 by striking paragraph (4).

15 (c) PRIVATE LOAN TEST INCREASED.—Subpara16 graph (B) of section 141(c)(1) (relating to the private loan

17 financing test) is amended by striking ‘‘$5,000,000’’ and

18 inserting ‘‘$15,000,000’’.

19 (d) CONFORMING AMENDMENTS.—
3

•HR 3630 IH

1 (1) Subsection (b) of section 141 is amended by

2 redesignating paragraphs (5) through (9) as para3 graphs (3) through (7), respectively.

4 (2) Paragraph (2) of section 141(d) is amended

5 by striking ‘‘(within the meaning of subsection

6 (b)(4)).’’

7 (3) Sections 142(c)(2) and 146(k)(3) are each

8 amended by striking ‘‘141(b)(6)’’ and inserting

9 ‘‘141(b)(4)’’.

10 (4) The following provisions are each amended

11 by striking ‘‘141(b)(5)’’ and inserting ‘‘141(b)(3)’’:

12 (A) Section 146(k)(3).

13 (B) Section 146(m)(1).

14 (C) Section 146(m)(2).

15 (D) Section 149(f)(4)(B)(i).

16 (e) EFFECTIVE DATE.—The amendments made by

17 this section shall apply to bonds issued after the date of

18 the enactment of this Act.

19 SEC. 3. SIMPLIFICATION OF ARBITRAGE REBATE.

20 (a) EXPANSION OF EXCEPTION FROM REBATE FOR

21 SMALL ISSUERS.—Subparagraph (D) of section 148(f)(4)

22 (relating to the rebate exception for governmental units

23 issuing $5,000,000 or less of bonds) is amended by strik24 ing ‘‘$5,000,000’’ each place it appears and inserting

25 ‘‘$10,000,000’’.
4

•HR 3630 IH

1 (b) REPEAL OF $100,000 LIMITATION ON UNSPENT

2 PROCEEDS UNDER 1-YEAR EXCEPTION FROM REBATE.—

3 Subclause (I) of section 148(f)(4)(B)(ii) (relating to addi4 tional period for certain bonds for purposes of the 6-month

5 expenditure exception to rebate) is amended by striking

6 ‘‘the lesser of 5 percent of the proceeds of the issuer or

7 $100,000’’ and inserting ‘‘5 percent of the proceeds of the

8 issue’’.

9 (c) REPEAL OF DEBT SERVICE-BASED LIMITATION

10 ON INVESTMENT IN CERTAIN NONPURPOSE INVEST11 MENTS.—Subsection (d) of section 148 (relating to special

12 rules for reasonably required reserve or replacement fund)

13 is amended by striking paragraph (3).

14 (d) EXEMPTION FROM REBATE FOR CERTAIN

15 BONDS.—Subparagraph (C) of section 148(f)(4) is

16 amended to read as follows:

17 ‘‘(C) EXCEPTION FROM REBATE FROM

18 CERTAIN BONDS.—If all of the bonds which are

19 part of an issue (other than a refunding issue

20 or tax and revenue anticipation issue) are quali21 fied 501(c)(3) bonds, bonds which are not pri22 vate activity bonds, or private activity bonds is23 sued to finance property to be owned by a gov24 ernmental unit or a 501(c)(3) organization,
5

•HR 3630 IH

1 such issue shall be treated as meeting the re2 quirements of paragraph (2) if—

3 ‘‘(i) no later than the day which is 1

4 year after the date of issuance of such

issue, at least 331 5 ⁄3 percent of the gross

6 proceeds have been expended for the gov7 ernmental purpose of the issue;

8 ‘‘(ii) not later than the day which is

9 2 years after the date of issuance of such

10 issue, at least 75 percent of the gross pro11 ceeds have been expended for the govern12 mental purpose of the issue; and

13 ‘‘(iii) no later than the day which is 3

14 years after the date of issuance of such

15 issue, at least 100 percent of the gross

16 proceeds have been expended for the gov17 ernmental purpose of the issue.

18 For purposes of this paragraph only, only pro19 ceeds expended for construction, reconstruction,

20 or rehabilitation (including the acquisition of

21 land, equipment and furnishings) shall be con22 sidered to have been expended for the govern23 mental purpose of the issue.’’
6

•HR 3630 IH

1 (e) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to bonds issued after the date of

3 the enactment of this Act.

4 SEC. 4. INCREASE IN SMALL ISSUER EXEMPTION FROM

5 PRO RATA ALLOCATION OF INTEREST EX6 PENSE OF FINANCIAL INSTITUTIONS TO TAX7 EXEMPT INTEREST.

8 (a) IN GENERAL.—Subparagraphs (C) and (D) of

9 section 265(b)(3) are each amended by striking

10 ‘‘$10,000,000’’ each place it appears and inserting

11 ‘‘$25,000,000’’.

12 (b) EFFECTIVE DATE.—The amendment made by

13 subsection (a) shall apply to bonds issued after the date

14 of enactment.

15 SEC. 5. INDEXATION OF VOLUME CAP.

16 (a) GENERAL RULE.—Paragraphs (1) and (2) of sec17 tion 146(d) are amended to read as follows:

18 ‘‘(1) IN GENERAL.—The State ceiling applicable

19 to any State for any calendar year shall be the

20 greater of—

21 ‘‘(A) an amount equal to $50 multiplied by

22 the State population, or

23 ‘‘(B) $150,000,000.’’

24 Subparagraph (B) shall not apply to any possession

25 of the United States.
7

•HR 3630 IH

1 ‘‘(2) INFLATION ADJUSTMENT.—In the case of

2 any calendar year beginning after 1993, each dollar

3 amount contained in paragraph (1) shall be in4 creased by an amount equal to—

5 ‘‘(A) such dollar amount, multiplied by

6 ‘‘(B) the cost-of-living adjustment for such

7 calendar year as determined under section

8 1(h)(3).’’

9 (b) EFFECTIVE DATE.—The amendment made by

10 subsection (a) shall apply to calendar year 1993 and sub11 sequent calendar years.

12 SEC. 6. CLARIFICATION OF INVESTMENT-TYPE PROPERTY.

13 (a) IN GENERAL.—Subparagraph (D) of section

14 148(b)(2) is amended to read as follows:

15 ‘‘(D) any investment-type property, or’’.

16 (b) EFFECTIVE DATE.—The amendment made by

17 subsection (a) shall take effect as if included in the

18 amendments made by section 1301 of the Tax Reform Act

19 of 1986.

20 SEC. 7. DISTRESSED COMMUNITY ECONOMIC DEVELOP21 MENT BONDS.

22 (a) IN GENERAL.—Paragraph (1) of section 141(e)

23 (defining qualified bond) is amended by striking ‘‘or’’ at

24 the end of subparagraph (F), by striking the period at

25 the end of subparagraph (G) and inserting ‘‘, or’’, and
8

•HR 3630 IH

1 by adding at the end thereof the following new subpara2 graph:

3 ‘‘(H) a distressed community economic de4 velopment bond.’’

5 (b) DISTRESSED COMMUNITY ECONOMIC DEVELOP6 MENT BOND DEFINED.—

7 (1) IN GENERAL.—Section 144 is amended by

8 adding at the end thereof the following new sub9 section:

10 ‘‘(d) DISTRESSED COMMUNITY ECONOMIC DEVELOP11 MENT BOND.—For purposes of this subpart—

12 ‘‘(1) IN GENERAL.—The term ‘distressed com13 munity economic development bond’ means any bond

14 issued as part of an issue 95 percent or more of the

15 net proceeds of which are to be used for distressed

16 community economic development purposes.

17 ‘‘(2) DISTRESSED COMMUNITY ECONOMIC DE18 VELOPMENT PURPOSES.—For purposes of this sub19 section, the net proceeds of any issue shall be treat20 ed as used for distressed community economic devel21 opment purposes to the extent such proceeds are

22 used—

23 ‘‘(A) to provide qualified economic develop24 ment facilities or land which is functionally re25 lated and subordinate to such facilities, or
9

•HR 3630 IH

1 ‘‘(B) to provide working capital required in

2 connection with the establishment of a qualified

3 business in a distressed community or the ex4 pansion of such a business in such a commu5 nity.

6 ‘‘(3) QUALIFIED ECONOMIC DEVELOPMENT FA7 CILITIES.—For purposes of this subsection, the term

8 ‘qualified economic development facilities’ means any

9 property to which section 168 applies (or would

10 apply but for section 179) if—

11 ‘‘(A) such property was acquired by pur12 chase (as defined in section 179(d)(2)) after the

13 date on which the designation of the distressed

14 community took effect,

15 ‘‘(B) the original use of which in the dis16 tressed community commences with the person

17 to whom the financing is provided under the

18 issue, and

19 ‘‘(C) substantially all the use of which is in

20 a distressed community and in the active con21 duct of a qualified business.

22 For purposes of the preceding sentence, rules similar

23 to the rules of subsections (a)(2) and (b) of section

24 1397C shall apply.
10

•HR 3630 IH

1 ‘‘(4) QUALIFIED BUSINESS.—For purposes of

2 this subsection—

3 ‘‘(A) IN GENERAL.—Except as otherwise

4 provided in this paragraph, the term ‘qualified

5 business’ means any trade or business.

6 ‘‘(B) RENTAL OF REAL PROPERTY.—The

7 rental of any building or structure located in a

8 distressed community shall be treated as a

9 qualified business if and only if—

10 ‘‘(i) the property is not residential

11 rental property (as defined in section

12 168(e)(2), and

13 ‘‘(ii) at least 50 percent of the gross

14 rental income from the building or struc15 ture is from other qualified businesses in

16 such community.

17 ‘‘(C) RENTAL OF TANGIBLE PERSONAL

18 PROPERTY.—The rental of tangible personal

19 property shall be treated as a qualified business

20 if and only if substantially all of the rental of

21 such property is by qualified businesses in the

22 distressed community or by individual residents

23 of the distressed community.

24 ‘‘(D) TREATMENT OF BUSINESS HOLDING

25 INTANGIBLES.—The term ‘qualified business’
11

•HR 3630 IH

1 shall not include any trade or business consist2 ing predominantly of the development or hold3 ing of intangibles for sale or license.

4 ‘‘(E) CERTAIN BUSINESSES EXCLUDED.—

5 The term ‘qualified business’ shall not include

6 any trade or business consisting of—

7 ‘‘(i) the operation of any facility de8 scribed in subsection (c)(6)(B), or

9 ‘‘(ii) operating a trade or business the

10 principal activity of which is farming

11 (within the meaning of subparagraph (A)

12 or (B) of section 2032A(e)(5)), but only if,

13 as of the close of the preceding taxable

14 year, the sum of the following exceeds

15 $500,000—

16 ‘‘(I) the aggregate unadjusted

17 bases (or, if greater, the fair market

18 value) of the assets owned by the tax19 payer and used in such trade or busi20 ness, and

21 ‘‘(II) the aggregate value of the

22 assets leased by the taxpayer and

23 used in such trade or business.
12

•HR 3630 IH

1 For purposes of subclause (II), rules simi2 lar to the rules of section 1397(b) shall

3 apply.

4 ‘‘(5) DISTRESSED COMMUNITY.—For purposes

5 of this subsection, the term ‘distressed community’

6 means, with respect to periods in any calendar year,

7 any area—

8 ‘‘(A) which is the area over which a gen9 eral purpose local governmental unit has juris10 diction and which is designated for purposes of

11 this subsection by the governing body of such

12 unit, and

13 ‘‘(B) which (as of the beginning of such

14 year) meets the requirements of clause (i), (ii),

15 or (iii) of this subparagraph:

16 ‘‘(i) CHRONIC ECONOMIC DISTRESS.—

17 An area meets the requirements of this

18 clause if—

19 ‘‘(I) the area has experienced

20 population loss (as determined by the

21 1990 or subsequent census data) of

22 not less than 5 percent, or

23 ‘‘(II) the area has experienced an

24 average unemployment rate over the

25 last 5 years (as determined by the
13

•HR 3630 IH

1 Bureau of Labor Statistics) of not

2 less than 8 percent.

3 ‘‘(ii) SLOW JOB GROWTH.—An area

4 meets the requirements of this clause if,

5 over the last 5 years—

6 ‘‘(I) the area has experienced job

7 growth in the retail and manufactur8 ing sectors of less than 3 percent, or

9 ‘‘(II) if data are available only

10 for the manufacturing sector, the

11 community has experienced no job

12 growth in such sector, or if data are

13 available only for the retail sector, the

14 area has experienced job growth in

15 such sector of less than 8.5 percent.

16 ‘‘(iii) MAJOR BASE CLOSING.—An

17 area meets the requirements of this clause

18 if—

19 ‘‘(I) there has been a military

20 base closing within its boundaries or

21 adjacent thereto within the last 2

22 years which has resulted, or will re23 sult, in the loss of not less than 500

24 jobs, or
14

•HR 3630 IH

1 ‘‘(II) there has been an official

2 notification of a military base closing

3 within its boundaries or adjacent

4 thereto within the next 6 months,

5 which will result in the loss of not less

6 than 500 jobs.

7 ‘‘(6) PROHIBITION OF ASSISTANCE FOR BUSI8 NESS RELOCATIONS.—

9 ‘‘(A) IN GENERAL.—This subsection shall

10 not apply to any bonds issued as part of an

11 issue if any of the proceeds of such an issue are

12 used to assist any establishment in relocating

13 from an area outside the distressed community

14 to the distressed community.

15 ‘‘(B) EXCEPTION.—The limitation estab16 lished in subparagraph (A) shall not be con17 strued to prohibit assistance for the expansion

18 of an existing business entity through the estab19 lishment of a new branch affiliate, or subsidiary

20 if—

21 ‘‘(i) the establishment of the new

22 branch, affiliate, or subsidiary will not re23 sult in a decrease in employment in the

24 area of original location or in any other
15

•HR 3630 IH

1 area where the existing business entity

2 conducts business operations, and

3 ‘‘(ii) there is no reason to believe that

4 the new branch, affiliate, or subsidiary is

5 being established with the intention of clos6 ing down the operations of the existing

7 business entity in the area of its original

8 location or in any other area where the ex9 isting business entity conducts business op10 erations.’’

11 (2) CLERICAL AMENDMENTS.—

12 (A) The section heading for section 144 is

13 amended by striking ‘‘QUALIFIED REDEVEL14 OPMENT BOND.’’ and inserting ‘‘ETC.’’.

15 (B) The table of sections for subpart A of

16 part IV of subchapter B of chapter 1 is amend17 ed by striking ‘‘qualified redevelopment bond.’’

18 in the item relating to section 144 and inserting

19 ‘‘etc.’’.

20 (c) CERTAIN RULES NOT TO APPLY.—

21 (1) Subsection (h) of section 147 (relating to

22 certain rules which do not apply) is amended by

23 adding at the end thereof the following new para24 graph:
16

•HR 3630 IH

1 ‘‘(3) BONDS FOR DISTRESSED COMMUNITY ECO2 NOMIC DEVELOPMENT FACILITIES.—Subsection

3 (c)(1)(A) shall be applied by substituting ‘50 per4 cent’ for ‘25 percent’ and subsection (d) shall not

5 apply to any bond issued as part of an issue de6 scribed in section 144(d)(1).’’

7 (2) The subsection heading for subsection (h) of

8 section 147 is amended to read as follows:

9 ‘‘(h) SPECIAL RULES FOR CERTAIN BONDS.—’’.

10 (d) VOLUME CAP ONLY CHARGED WITH 50 PER11 CENT OF DISTRESSED COMMUNITY ECONOMIC DEVELOP12 MENT BONDS.—Subsection (g) of section 146 (relating to

13 an exception for certain bonds from volume cap) is amend14 ed by striking ‘‘and’’ at the end of paragraph (3), by strik15 ing the period at the end of paragraph (4) and inserting

16 ‘‘, and’’, and by adding at the end thereof the following

17 new paragraph:

18 ‘‘(5) 50 percent of any bond issued as part of

19 an issue described in section 144(d)(1) (relating to

20 distressed community economic development facili21 ties).’’

22 (e) PENALTIES FOR LOANS MADE TO BUSINESSES

23 THAT CEASE TO BE DISTRESSED COMMUNITY ECONOMIC

24 DEVELOPMENT BUSINESSES, ETC.—Subsection (b) of
17

•HR 3630 IH

1 section 150 (relating to change in use) is amended by add2 ing at the end thereof the following new paragraph:

3 ‘‘(6) DISTRESSED COMMUNITY ECONOMIC DE4 VELOPMENT BONDS.—In the case of any qualified

5 economic development facility with respect to which

6 financing was provided by an issue described in sec7 tion 144(d)(1):

8 ‘‘(A) NO DEDUCTION ALLOWED.—No de9 duction shall be allowed under this chapter for

10 interest on such financing which accrues during

11 the period beginning on the first day of the cal12 endar year which includes the date on which—

13 ‘‘(i) the trade or business to which the

14 financing was provided ceases to be a

15 qualified business, or

16 ‘‘(ii) substantially all of the use of

17 such facility with respect to which the fi18 nancing was provided ceases to be in a dis19 tressed community.

20 For purposes of this subparagraph, the term

21 ‘distressed community’ means any area which

22 qualifies as a distressed community under sec23 tion 144(d)(5) as of the time the financing was

24 provided without regard to any subsequent rev25 ocation or termination.
18

•HR 3630 IH

1 ‘‘(B) PENALTY IMPOSED ON DISTRESSED

2 COMMUNITY ECONOMIC DEVELOPMENT BUSI3 NESS.—If at any time while such financing is

4 outstanding—

5 ‘‘(i) such facility ceases to be in use in

6 a qualified business, or

7 ‘‘(ii) substantially all of the use of

8 such facility ceases to be in a distressed

9 community (as so defined),

10 there is hereby imposed on such business to

11 which such financing was provided a penalty

12 equal to 1.25 percent of the portion of such fi13 nancing which is outstanding immediately be14 fore such cessation. Such penalty shall be as15 sessed and collected by the Secretary.

16 ‘‘(C) EXCEPTION FOR BANKRUPTCY.—

17 Subparagraphs (A) and (B) shall not apply to

18 any cessation resulting from bankruptcy.’’

19 (f) BANK INTEREST DEDUCTION.—

20 (1) IN GENERAL.—Clause (ii) of section

21 265(b)(3)(B) (relating to exception for certain tax22 exempt obligations) is amended—

23 (A) by striking ‘‘or’’ at the end of

24 subclause (I),
19

•HR 3630 IH

1 (B) by redesignating subclause (II) as

2 subclause (III), and

3 (C) by inserting after subclause (I) the fol4 lowing new subclause:

5 ‘‘(II) any bond issued as part of

6 an issue described in section

7 144(d)(1), or’’.

8 (2) CONFORMING AGREEMENT.—Subclause (I)

9 of section 265(b)(3)(B)(i) (defining qualified tax-ex10 empt obligation) is amended by inserting ‘‘or is an

11 obligation issued as part of an issue described in

12 section 144(d)(1)’’ after ‘‘issuer’’.

Æ

HR 3630 IH——2