I 

111TH CONGRESS 

2D SESSION H. R. 5189 

To amend the Internal Revenue Code of 1986 to require that the issuer 

of a tax-exempt State or local obligation obtain a certification that 

the interest rate with respect to such obligation is reasonable without 

materially increasing the risks associated with the obligation. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 29, 2010 

Mr. HINCHEY introduced the following bill; which was referred to the 

Committee on Ways and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to require 

that the issuer of a tax-exempt State or local obligation 

obtain a certification that the interest rate with respect 

to such obligation is reasonable without materially increasing the risks associated with the obligation. 

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. 

4 This Act may be cited as the ‘‘Municipal Finance Im5 provements Act of 2010’’. 


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1 SEC. 2. CERTIFICATION OF COST OF FINANCING OF MUNIC2 IPAL OBLIGATIONS. 

3 (a) IN GENERAL.—Section 149 of the Internal Rev4 enue Code of 1986 is amended by adding at the end the 

5 following new subsection: 

6 ‘‘(h) CERTIFICATION OF COST OF FINANCING.— 

7 ‘‘(1) IN GENERAL.—Section 103(a) shall not 

8 apply to any State or local bond issuance, including 

9 any private activity bond issuance, unless, with re10 spect to the issue of which such bond is a part, the 

11 requirements of paragraph (2) are met. 

12 ‘‘(2) OPTIMAL BOND FINANCING CERTIFI13 CATION REQUIREMENT.—The requirements of this 

14 paragraph are met with respect to an issue if the 

15 issuer of such bonds has received an optimal bond 

16 financing certification not later than the date such 

17 issue is originally issued. 

18 ‘‘(3) OPTIMAL BOND FINANCING CERTIFI19 CATION.—For purposes of this subsection— 

20 ‘‘(A) IN GENERAL.—The term ‘optimal 

21 bond financing certification’ means a written 

22 statement by an independent qualified financial 

23 adviser which— 

24 ‘‘(i) certifies that, in the opinion of an 

25 independent qualified financial adviser, the 

26 fees associated with the issuance and the 


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1 aggregate interest cost to such issuer with 

2 respect to such bonds are reasonable com3 pared with fees and interest rate cost 

4 available in the financial marketplace in 

5 which such bonds may be sold, without 

6 materially increasing the risks to the issuer 

7 or bond obligors, and 

8 ‘‘(ii) details the reasons supporting 

9 the certification described in subparagraph 

10 (A) (including the effect the selected legal 

11 structure has on the aggregate interest 

12 cost). 

13 ‘‘(B) QUALIFIED INDEPENDENT FINAN14 CIAL ADVISOR.— 

15 ‘‘(i) IN GENERAL.—The term ‘quali16 fied independent financial advisor’ means 

17 an individual who— 

18 ‘‘(I) has the professional quali19 fications required to advise the issuer 

20 of such bond as to the financial cost 

21 of such issue and the appropriate 

22 legal structures and financing alter23 natives for optimization of the cost of 

24 such issue, and 


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1 ‘‘(II) has a legal fiduciary duty to 

2 the issuer (whether under common 

3 law, or otherwise), which includes the 

4 duty to advise without regard to the 

5 financial or other interest of the indi6 vidual. 

7 ‘‘(ii) RELATED OR INTERESTED PAR8 TIES EXCLUDED.—For purposes of this 

9 subparagraph, an individual shall not be 

10 treated as an independent qualified finan11 cial adviser if— 

12 ‘‘(I) such adviser is, is employed 

13 by, or is employed by any person who 

14 is owned (directly or indirectly) by, 

15 the underwriter of such bond, 

16 ‘‘(II) such adviser is providing 

17 any other financial advice with respect 

18 to the issuance of such bond for which 

19 such advisor is receiving remuneration 

20 (or is employed by, or is employed by 

21 any person who is owned (directly or 

22 indirectly) by, such a person), or 

23 ‘‘(III) the remuneration of such 

24 adviser is contingent, directly or indi25 rectly, on the issuance of such issue. 


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1 ‘‘(iii) SPECIAL RULE FOR EMPLOYEES

2 OF STATE OR LOCAL GOVERNMENT.—An 

3 individual shall not fail to be treated as 

4 qualified independent financial advisor 

5 solely by reason of being an employee of 

6 the State or local government with respect 

7 to which the bond is being issued. 

8 ‘‘(4) OPTIMAL BOND FINANCING CERTIFI9 CATION.—The issuer of any State or local bond 

10 issuance shall make publicly available the optimal 

11 bond financing certification with respect to such 

12 issuance. 

13 ‘‘(5) CALLABLE BONDS.— 

14 ‘‘(A) IN GENERAL.—A callable State or 

15 local bond issue shall not be treated as con16 tinuing to meet the requirements of paragraph 

17 (2) unless the issuer of such bonds has reason18 ably determined as of the first date on which 

19 outstanding bonds may be called, and annually 

20 thereafter, that exercising such right to call 

21 such bonds and refunding such bonds will not 

22 result in a substantial economic savings to the 

23 issuer, or private activity user, of such bonds in 

24 the marketplace in which such bonds would be 

25 called and refunded. 


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1 ‘‘(B) CALLABLE STATE OR LOCAL BOND.— 

2 For purposes of this paragraph, the term ‘call3 able State or local bond issue’ means a bond 

4 issue which provides for a presently exercisable 

5 optional right to the issuer, or private activity 

6 user of the proceeds, of such bonds to retire all 

7 or part of such bonds at a stated date, but only 

8 if the remaining term to original maturity of 

9 such bonds is more than 23 months after the 

10 date that such optional right is first exercisable, 

11 with or without the payment of any premium to 

12 the holders of such bonds. 

13 ‘‘(6) TAX CREDIT BONDS.—For purposes of 

14 this subsection, the term ‘State or local bond’ shall 

15 include any tax credit bond (as defined in section 

16 853A(e)(1)(A)).’’. 

17 (b) EFFECTIVE DATE.— 

18 (1) IN GENERAL.—Except as provided in para19 graph (2), the amendments made by this section 

20 shall apply to obligations issued after the date of the 

21 enactment of this Act. 

22 (2) CALLABLE BONDS.—In the case of callable 

23 obligations originally issued or refunded before the 

24 date of the enactment of this Act, the amendments 

25 made by this section shall apply to any such obligaVerDate Mar 15 2010 00:06 May 01, 2010 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H5189.IH H5189

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1 tion that may be called, in whole or in part, before, 

2 on, or after the date of the enactment of this Act. 

3 SEC. 3. SMALL ISSUER CREDIT. 

4 (a) IN GENERAL.—Subchapter B of chapter 65 of the 

5 Internal Revenue Code of 1986 is amended by adding at 

6 the end the following new section: 

7 ‘‘SEC. 6433. SMALL ISSUER CREDIT. 

8 ‘‘(a) IN GENERAL.—In the case of bond issued by 

9 a small issuer, such issuer shall be allowed as a credit with 

10 respect to such bond an amount equal to 0.05 percent of 

11 the principle amount of such bond which shall be payable 

12 by the Secretary as provided in subsection (b). 

13 ‘‘(b) PAYMENT OF CREDIT.—The Secretary shall pay 

14 to such issuer the amount of the credit determined under 

15 subsection (a) on such date as the Secretary can reason16 ably determine such issuer is a small issuer for the cal17 endar year. 

18 ‘‘(c) SMALL ISSUER.—For purposes of this section— 

19 ‘‘(1) IN GENERAL.—The term ‘small issuer’ 

20 means, with respect to any calendar year, any issuer 

21 if the aggregate face amount of all tax-exempt bonds 

22 (other than private activity bonds) issued by such 

23 issuer during such calendar year does not exceed 

24 $50,000,000. 


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1 ‘‘(2) CERTAIN REFUNDING BONDS NOT TAKEN

2 INTO ACCOUNT IN DETERMINING SMALL ISSUER

3 STATUS.—There shall not be taken into account 

4 under paragraph (1) any bond issued to refund 

5 (other than to advance refund) any bond to the ex6 tent the amount of the refunding bond does not ex7 ceed the outstanding amount of the refunded bond.’’. 

8 (b) CLERICAL AMENDMENT.—The table of sections 

9 for subchapter B of chapter 65 of such Code is amended 

10 by adding at the end the following new item: 

‘‘Sec. 6433. Small issuer credit.’’. 

11 (c) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to obligations issued after the date 

13 of the enactment of this Act. 

Æ 


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