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.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE;
TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Public Finance and Infrastructure Investment Act of
1993’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
(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.
SEC. 2. DEFINITION OF PRIVATE ACTIVITY BONDS.
(a) REPEAL OF 5 PERCENT UNRELATED AND DIS-
PROPORTIONATE PRIVATE USE TEST.—Subsection (b) of
section 141 (relating to private business tests) is amended
by striking paragraph (3).
(b) REPEAL OF LOWER PRIVATE BUSINESS TEST
FOR CERTAIN OUTPUT FACILITIES.—Subsection (b) of
section 141 (relating to private business tests) is amended
by striking paragraph (4).
(c) PRIVATE LOAN TEST INCREASED.—Subpara-
graph (B) of section 141(c)(1) (relating to the private loan
financing test) is amended by striking ‘‘$5,000,000’’ and
inserting ‘‘$15,000,000’’.
(d) CONFORMING AMENDMENTS.—
(1) Subsection (b) of section 141 is amended by
redesignating paragraphs (5) through (9) as para-
graphs (3) through (7), respectively.
(2) Paragraph (2) of section 141(d) is amended
by striking ‘‘(within the meaning of subsection
(b)(4)).’’
(3) Sections 142(c)(2) and 146(k)(3) are each
amended by striking ‘‘141(b)(6)’’ and inserting
‘‘141(b)(4)’’.
(4) The following provisions are each amended
by striking ‘‘141(b)(5)’’ and inserting ‘‘141(b)(3)’’:
(A) Section 146(k)(3).
(B) Section 146(m)(1).
(C) Section 146(m)(2).
(D) Section 149(f)(4)(B)(i).
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to bonds issued after the date of
the enactment of this Act.
SEC. 3. SIMPLIFICATION OF ARBITRAGE REBATE.
(a) EXPANSION OF EXCEPTION FROM REBATE FOR
SMALL ISSUERS.—Subparagraph (D) of section 148(f)(4)
(relating to the rebate exception for governmental units
issuing $5,000,000 or less of bonds) is amended by strik-
ing ‘‘$5,000,000’’ each place it appears and inserting
‘‘$10,000,000’’.
(b) REPEAL OF $100,000 LIMITATION ON UNSPENT
PROCEEDS UNDER 1-YEAR EXCEPTION FROM REBATE.—
Subclause (I) of section 148(f)(4)(B)(ii) (relating to addi-
tional period for certain bonds for purposes of the 6-month
expenditure exception to rebate) is amended by striking
‘‘the lesser of 5 percent of the proceeds of the issuer or
$100,000’’ and inserting ‘‘5 percent of the proceeds of the
issue’’.
(c) REPEAL OF DEBT SERVICE-BASED LIMITATION
ON INVESTMENT
IN CERTAIN NONPURPOSE INVEST-
MENTS.—Subsection (d) of section 148 (relating to special
rules for reasonably required reserve or replacement fund)
is amended by striking paragraph (3).
(d) EXEMPTION
FROM
REBATE
FOR
CERTAIN
BONDS.—Subparagraph (C) of section 148(f)(4) is
amended to read as follows:
‘‘(C) EXCEPTION
FROM
REBATE
FROM
CERTAIN BONDS.—If all of the bonds which are
part of an issue (other than a refunding issue
or tax and revenue anticipation issue) are quali-
fied 501(c)(3) bonds, bonds which are not pri-
vate activity bonds, or private activity bonds is-
sued to finance property to be owned by a gov-
ernmental unit or a 501(c)(3) organization,
such issue shall be treated as meeting the re-
quirements of paragraph (2) if—
‘‘(i) no later than the day which is 1
year after the date of issuance of such
issue, at least 331⁄3 percent of the gross
proceeds have been expended for the gov-
ernmental purpose of the issue;
‘‘(ii) not later than the day which is
2 years after the date of issuance of such
issue, at least 75 percent of the gross pro-
ceeds have been expended for the govern-
mental purpose of the issue; and
‘‘(iii) no later than the day which is 3
years after the date of issuance of such
issue, at least 100 percent of the gross
proceeds have been expended for the gov-
ernmental purpose of the issue.
For purposes of this paragraph only, only pro-
ceeds expended for construction, reconstruction,
or rehabilitation (including the acquisition of
land, equipment and furnishings) shall be con-
sidered to have been expended for the govern-
mental purpose of the issue.’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to bonds issued after the date of
the enactment of this Act.
SEC. 4. INCREASE IN SMALL ISSUER EXEMPTION FROM
PRO RATA ALLOCATION OF INTEREST EX-
PENSE OF FINANCIAL INSTITUTIONS TO TAX-
EXEMPT INTEREST.
(a) IN GENERAL.—Subparagraphs (C) and (D) of
section 265(b)(3) are each amended by striking
‘‘$10,000,000’’ each place it appears and inserting
‘‘$25,000,000’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to bonds issued after the date
of enactment.
SEC. 5. INDEXATION OF VOLUME CAP.
(a) GENERAL RULE.—Paragraphs (1) and (2) of sec-
tion 146(d) are amended to read as follows:
‘‘(1) IN GENERAL.—The State ceiling applicable
to any State for any calendar year shall be the
greater of—
‘‘(A) an amount equal to $50 multiplied by
the State population, or
‘‘(B) $150,000,000.’’
Subparagraph (B) shall not apply to any possession
of the United States.
‘‘(2) INFLATION ADJUSTMENT.—In the case of
any calendar year beginning after 1993, each dollar
amount contained in paragraph (1) shall be in-
creased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment for such
calendar year as determined under section
1(h)(3).’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to calendar year 1993 and sub-
sequent calendar years.
SEC. 6. CLARIFICATION OF INVESTMENT-TYPE PROPERTY.
(a) IN GENERAL.—Subparagraph (D) of section
148(b)(2) is amended to read as follows:
‘‘(D) any investment-type property, or’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect as if included in the
amendments made by section 1301 of the Tax Reform Act
of 1986.
SEC. 7. DISTRESSED COMMUNITY ECONOMIC DEVELOP-
MENT BONDS.
(a) IN GENERAL.—Paragraph (1) of section 141(e)
(defining qualified bond) is amended by striking ‘‘or’’ at
the end of subparagraph (F), by striking the period at
the end of subparagraph (G) and inserting ‘‘, or’’, and
by adding at the end thereof the following new subpara-
graph:
‘‘(H) a distressed community economic de-
velopment bond.’’
(b) DISTRESSED COMMUNITY ECONOMIC DEVELOP-
MENT BOND DEFINED.—
(1) IN GENERAL.—Section 144 is amended by
adding at the end thereof the following new sub-
section:
‘‘(d) DISTRESSED COMMUNITY ECONOMIC DEVELOP-
MENT BOND.—For purposes of this subpart—
‘‘(1) IN GENERAL.—The term ‘distressed com-
munity economic development bond’ means any bond
issued as part of an issue 95 percent or more of the
net proceeds of which are to be used for distressed
community economic development purposes.
‘‘(2) DISTRESSED COMMUNITY ECONOMIC DE-
VELOPMENT PURPOSES.—For purposes of this sub-
section, the net proceeds of any issue shall be treat-
ed as used for distressed community economic devel-
opment purposes to the extent such proceeds are
used—
‘‘(A) to provide qualified economic develop-
ment facilities or land which is functionally re-
lated and subordinate to such facilities, or
‘‘(B) to provide working capital required in
connection with the establishment of a qualified
business in a distressed community or the ex-
pansion of such a business in such a commu-
nity.
‘‘(3) QUALIFIED ECONOMIC DEVELOPMENT FA-
CILITIES.—For purposes of this subsection, the term
‘qualified economic development facilities’ means any
property to which section 168 applies (or would
apply but for section 179) if—
‘‘(A) such property was acquired by pur-
chase (as defined in section 179(d)(2)) after the
date on which the designation of the distressed
community took effect,
‘‘(B) the original use of which in the dis-
tressed community commences with the person
to whom the financing is provided under the
issue, and
‘‘(C) substantially all the use of which is in
a distressed community and in the active con-
duct of a qualified business.
For purposes of the preceding sentence, rules similar
to the rules of subsections (a)(2) and (b) of section
1397C shall apply.
‘‘(4) QUALIFIED BUSINESS.—For purposes of
this subsection—
‘‘(A) IN GENERAL.—Except as otherwise
provided in this paragraph, the term ‘qualified
business’ means any trade or business.
‘‘(B) RENTAL OF REAL PROPERTY.—The
rental of any building or structure located in a
distressed community shall be treated as a
qualified business if and only if—
‘‘(i) the property is not residential
rental property (as defined in section
168(e)(2), and
‘‘(ii) at least 50 percent of the gross
rental income from the building or struc-
ture is from other qualified businesses in
such community.
‘‘(C) RENTAL
OF
TANGIBLE
PERSONAL
PROPERTY.—The rental of tangible personal
property shall be treated as a qualified business
if and only if substantially all of the rental of
such property is by qualified businesses in the
distressed community or by individual residents
of the distressed community.
‘‘(D) TREATMENT OF BUSINESS HOLDING
INTANGIBLES.—The term ‘qualified business’
shall not include any trade or business consist-
ing predominantly of the development or hold-
ing of intangibles for sale or license.
‘‘(E) CERTAIN BUSINESSES EXCLUDED.—
The term ‘qualified business’ shall not include
any trade or business consisting of—
‘‘(i) the operation of any facility de-
scribed in subsection (c)(6)(B), or
‘‘(ii) operating a trade or business the
principal activity of which is farming
(within the meaning of subparagraph (A)
or (B) of section 2032A(e)(5)), but only if,
as of the close of the preceding taxable
year, the sum of the following exceeds
$500,000—
‘‘(I) the aggregate unadjusted
bases (or, if greater, the fair market
value) of the assets owned by the tax-
payer and used in such trade or busi-
ness, and
‘‘(II) the aggregate value of the
assets leased by the taxpayer and
used in such trade or business.
For purposes of subclause (II), rules simi-
lar to the rules of section 1397(b) shall
apply.
‘‘(5) DISTRESSED COMMUNITY.—For purposes
of this subsection, the term ‘distressed community’
means, with respect to periods in any calendar year,
any area—
‘‘(A) which is the area over which a gen-
eral purpose local governmental unit has juris-
diction and which is designated for purposes of
this subsection by the governing body of such
unit, and
‘‘(B) which (as of the beginning of such
year) meets the requirements of clause (i), (ii),
or (iii) of this subparagraph:
‘‘(i) CHRONIC ECONOMIC DISTRESS.—
An area meets the requirements of this
clause if—
‘‘(I) the area has experienced
population loss (as determined by the
1990 or subsequent census data) of
not less than 5 percent, or
‘‘(II) the area has experienced an
average unemployment rate over the
last 5 years (as determined by the
Bureau of Labor Statistics) of not
less than 8 percent.
‘‘(ii) SLOW
JOB
GROWTH.—An area
meets the requirements of this clause if,
over the last 5 years—
‘‘(I) the area has experienced job
growth in the retail and manufactur-
ing sectors of less than 3 percent, or
‘‘(II) if data are available only
for the manufacturing sector, the
community has experienced no job
growth in such sector, or if data are
available only for the retail sector, the
area has experienced job growth in
such sector of less than 8.5 percent.
‘‘(iii) MAJOR
BASE
CLOSING.—An
area meets the requirements of this clause
if—
‘‘(I) there has been a military
base closing within its boundaries or
adjacent thereto within the last 2
years which has resulted, or will re-
sult, in the loss of not less than 500
jobs, or
‘‘(II) there has been an official
notification of a military base closing
within its boundaries or adjacent
thereto within the next 6 months,
which will result in the loss of not less
than 500 jobs.
‘‘(6) PROHIBITION OF ASSISTANCE FOR BUSI-
NESS RELOCATIONS.—
‘‘(A) IN GENERAL.—This subsection shall
not apply to any bonds issued as part of an
issue if any of the proceeds of such an issue are
used to assist any establishment in relocating
from an area outside the distressed community
to the distressed community.
‘‘(B) EXCEPTION.—The limitation estab-
lished in subparagraph (A) shall not be con-
strued to prohibit assistance for the expansion
of an existing business entity through the estab-
lishment of a new branch affiliate, or subsidiary
if—
‘‘(i) the establishment of the new
branch, affiliate, or subsidiary will not re-
sult in a decrease in employment in the
area of original location or in any other
area where the existing business entity
conducts business operations, and
‘‘(ii) there is no reason to believe that
the new branch, affiliate, or subsidiary is
being established with the intention of clos-
ing down the operations of the existing
business entity in the area of its original
location or in any other area where the ex-
isting business entity conducts business op-
erations.’’
(2) CLERICAL AMENDMENTS.—
(A) The section heading for section 144 is
amended by striking ‘‘QUALIFIED REDEVEL-
OPMENT BOND.’’ and inserting ‘‘ETC.’’.
(B) The table of sections for subpart A of
part IV of subchapter B of chapter 1 is amend-
ed by striking ‘‘qualified redevelopment bond.’’
in the item relating to section 144 and inserting
‘‘etc.’’.
(c) CERTAIN RULES NOT TO APPLY.—
(1) Subsection (h) of section 147 (relating to
certain rules which do not apply) is amended by
adding at the end thereof the following new para-
graph:
‘‘(3) BONDS FOR DISTRESSED COMMUNITY ECO-
NOMIC
DEVELOPMENT
FACILITIES.—Subsection
(c)(1)(A) shall be applied by substituting ‘50 per-
cent’ for ‘25 percent’ and subsection (d) shall not
apply to any bond issued as part of an issue de-
scribed in section 144(d)(1).’’
(2) The subsection heading for subsection (h) of
section 147 is amended to read as follows:
‘‘(h) SPECIAL RULES FOR CERTAIN BONDS.—’’.
(d) VOLUME CAP ONLY CHARGED WITH 50 PER-
CENT OF DISTRESSED COMMUNITY ECONOMIC DEVELOP-
MENT BONDS.—Subsection (g) of section 146 (relating to
an exception for certain bonds from volume cap) is amend-
ed by striking ‘‘and’’ at the end of paragraph (3), by strik-
ing the period at the end of paragraph (4) and inserting
‘‘, and’’, and by adding at the end thereof the following
new paragraph:
‘‘(5) 50 percent of any bond issued as part of
an issue described in section 144(d)(1) (relating to
distressed community economic development facili-
ties).’’
(e) PENALTIES FOR LOANS MADE TO BUSINESSES
THAT CEASE TO BE DISTRESSED COMMUNITY ECONOMIC
DEVELOPMENT BUSINESSES, ETC.—Subsection (b) of
section 150 (relating to change in use) is amended by add-
ing at the end thereof the following new paragraph:
‘‘(6) DISTRESSED COMMUNITY ECONOMIC DE-
VELOPMENT BONDS.—In the case of any qualified
economic development facility with respect to which
financing was provided by an issue described in sec-
tion 144(d)(1):
‘‘(A) NO DEDUCTION ALLOWED.—No de-
duction shall be allowed under this chapter for
interest on such financing which accrues during
the period beginning on the first day of the cal-
endar year which includes the date on which—
‘‘(i) the trade or business to which the
financing was provided ceases to be a
qualified business, or
‘‘(ii) substantially all of the use of
such facility with respect to which the fi-
nancing was provided ceases to be in a dis-
tressed community.
For purposes of this subparagraph, the term
‘distressed community’ means any area which
qualifies as a distressed community under sec-
tion 144(d)(5) as of the time the financing was
provided without regard to any subsequent rev-
ocation or termination.
‘‘(B) PENALTY IMPOSED ON DISTRESSED
COMMUNITY
ECONOMIC
DEVELOPMENT
BUSI-
NESS.—If at any time while such financing is
outstanding—
‘‘(i) such facility ceases to be in use in
a qualified business, or
‘‘(ii) substantially all of the use of
such facility ceases to be in a distressed
community (as so defined),
there is hereby imposed on such business to
which such financing was provided a penalty
equal to 1.25 percent of the portion of such fi-
nancing which is outstanding immediately be-
fore such cessation. Such penalty shall be as-
sessed and collected by the Secretary.
‘‘(C) EXCEPTION
FOR
BANKRUPTCY.—
Subparagraphs (A) and (B) shall not apply to
any cessation resulting from bankruptcy.’’
(f) BANK INTEREST DEDUCTION.—
(1) IN
GENERAL.—Clause (ii) of section
265(b)(3)(B) (relating to exception for certain tax-
exempt obligations) is amended—
(A) by striking ‘‘or’’ at the end of
subclause (I),
(B) by redesignating subclause (II) as
subclause (III), and
(C) by inserting after subclause (I) the fol-
lowing new subclause:
‘‘(II) any bond issued as part of
an 
issue 
described 
in 
section
144(d)(1), or’’.
(2) CONFORMING AGREEMENT.—Subclause (I)
of section 265(b)(3)(B)(i) (defining qualified tax-ex-
empt obligation) is amended by inserting ‘‘or is an
obligation issued as part of an issue described in
section 144(d)(1)’’ after ‘‘issuer’’.
Æ
HR 3630 IH——2