This would substantially reduce the costs of projects financed with tax-credit bonds. Arbitrage restrictions applied to traditional municipal bonds have resulted in uneconomic incentives and have imposed significant compliance costs on states and localities. The bill does not address cases where an issuer fails to comply with the conditions of the program while bonds remain outstanding. The only remedy in such a case would be to rescind the ability of investors to claim credits for the bonds in question. This provision would impose risks on investors and would hamper the success of tax-credit bonds.
Similar risks exist for investors in tax-exempt municipal bonds.
For tax-credit bonds, all the return earned by investors results from the tax preference. If the tax preference were rescinded, investors' rates of return would fall to zero. The tax-credit bond structure should be amended so that in cases of issuer violations of the terms of the program, the government's only course of remedy would be against bond issuers. Investors should not be subject to penalties for violations they did not commit. The overall size of the QIRB program would result in relatively small and illiquid secondary markets.