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.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Municipal Finance Improvements Act 
of 2010''.

SEC. 2. CERTIFICATION OF COST OF FINANCING OF MUNICIPAL OBLIGATIONS.

    (a) In General.--Section 149 of the Internal Revenue Code of 1986 
is amended by adding at the end the following new subsection:
    ``(h) Certification of Cost of Financing.--
            ``(1) In general.--Section 103(a) shall not apply to any 
        State or local bond issuance, including any private activity 
        bond issuance, unless, with respect to the issue of which such 
        bond is a part, the requirements of paragraph (2) are met.
            ``(2) Optimal bond financing certification requirement.--
        The requirements of this paragraph are met with respect to an 
        issue if the issuer of such bonds has received an optimal bond 
        financing certification not later than the date such issue is 
        originally issued.
            ``(3) Optimal bond financing certification.--For purposes 
        of this subsection--
                    ``(A) In general.--The term `optimal bond financing 
                certification' means a written statement by an 
                independent qualified financial adviser which--
                            ``(i) certifies that, in the opinion of an 
                        independent qualified financial adviser, the 
                        fees associated with the issuance and the 
                        aggregate interest cost to such issuer with 
                        respect to such bonds are reasonable compared 
                        with fees and interest rate cost available in 
                        the financial marketplace in which such bonds 
                        may be sold, without materially increasing the 
                        risks to the issuer or bond obligors, and
                            ``(ii) details the reasons supporting the 
                        certification described in subparagraph (A) 
                        (including the effect the selected legal 
                        structure has on the aggregate interest cost).
                    ``(B) Qualified independent financial advisor.--
                            ``(i) In general.--The term `qualified 
                        independent financial advisor' means an 
                        individual who--
                                    ``(I) has the professional 
                                qualifications required to advise the 
                                issuer of such bond as to the financial 
                                cost of such issue and the appropriate 
                                legal structures and financing 
                                alternatives for optimization of the 
                                cost of such issue, and
                                    ``(II) has a legal fiduciary duty 
                                to the issuer (whether under common 
                                law, or otherwise), which includes the 
                                duty to advise without regard to the 
                                financial or other interest of the 
                                individual.
                            ``(ii) Related or interested parties 
                        excluded.--For purposes of this subparagraph, 
                        an individual shall not be treated as an 
                        independent qualified financial adviser if--
                                    ``(I) such adviser is, is employed 
                                by, or is employed by any person who is 
                                owned (directly or indirectly) by, the 
                                underwriter of such bond,
                                    ``(II) such adviser is providing 
                                any other financial advice with respect 
                                to the issuance of such bond for which 
                                such advisor is receiving remuneration 
                                (or is employed by, or is employed by 
                                any person who is owned (directly or 
                                indirectly) by, such a person), or
                                    ``(III) the remuneration of such 
                                adviser is contingent, directly or 
                                indirectly, on the issuance of such 
                                issue.
                            ``(iii) Special rule for employees of state 
                        or local government.--An individual shall not 
                        fail to be treated as qualified independent 
                        financial advisor solely by reason of being an 
                        employee of the State or local government with 
                        respect to which the bond is being issued.
            ``(4) Optimal bond financing certification.--The issuer of 
        any State or local bond issuance shall make publicly available 
        the optimal bond financing certification with respect to such 
        issuance.
            ``(5) Callable bonds.--
                    ``(A) In general.--A callable State or local bond 
                issue shall not be treated as continuing to meet the 
                requirements of paragraph (2) unless the issuer of such 
                bonds has reasonably determined as of the first date on 
                which outstanding bonds may be called, and annually 
                thereafter, that exercising such right to call such 
                bonds and refunding such bonds will not result in a 
                substantial economic savings to the issuer, or private 
                activity user, of such bonds in the marketplace in 
                which such bonds would be called and refunded.
                    ``(B) Callable state or local bond.--For purposes 
                of this paragraph, the term `callable State or local 
                bond issue' means a bond issue which provides for a 
                presently exercisable optional right to the issuer, or 
                private activity user of the proceeds, of such bonds to 
                retire all or part of such bonds at a stated date, but 
                only if the remaining term to original maturity of such 
                bonds is more than 23 months after the date that such 
                optional right is first exercisable, with or without 
                the payment of any premium to the holders of such 
                bonds.
            ``(6) Tax credit bonds.--For purposes of this subsection, 
        the term `State or local bond' shall include any tax credit 
        bond (as defined in section 853A(e)(1)(A)).''.
    (b) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to obligations 
        issued after the date of the enactment of this Act.
            (2) Callable bonds.--In the case of callable obligations 
        originally issued or refunded before the date of the enactment 
        of this Act, the amendments made by this section shall apply to 
        any such obligation that may be called, in whole or in part, 
        before, on, or after the date of the enactment of this Act.

SEC. 3. SMALL ISSUER CREDIT.

    (a) In General.--Subchapter B of chapter 65 of the Internal Revenue 
Code of 1986 is amended by adding at the end the following new section:

``SEC. 6433. SMALL ISSUER CREDIT.

    ``(a) In General.--In the case of bond issued by a small issuer, 
such issuer shall be allowed as a credit with respect to such bond an 
amount equal to 0.05 percent of the principle amount of such bond which 
shall be payable by the Secretary as provided in subsection (b).
    ``(b) Payment of Credit.--The Secretary shall pay to such issuer 
the amount of the credit determined under subsection (a) on such date 
as the Secretary can reasonably determine such issuer is a small issuer 
for the calendar year.
    ``(c) Small Issuer.--For purposes of this section--
            ``(1) In general.--The term `small issuer' means, with 
        respect to any calendar year, any issuer if the aggregate face 
        amount of all tax-exempt bonds (other than private activity 
        bonds) issued by such issuer during such calendar year does not 
        exceed $50,000,000.
            ``(2) Certain refunding bonds not taken into account in 
        determining small issuer status.--There shall not be taken into 
        account under paragraph (1) any bond issued to refund (other 
        than to advance refund) any bond to the extent the amount of 
        the refunding bond does not exceed the outstanding amount of 
        the refunded bond.''.
    (b) Clerical Amendment.--The table of sections for subchapter B of 
chapter 65 of such Code is amended by adding at the end the following 
new item:

``Sec. 6433. Small issuer credit.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to obligations issued after the date of the enactment of this 
Act.

Summary: Municipal Finance Improvements Act of 2010 - Amends the Internal Revenue Code to require the issuer of a tax-exempt state or local bond to obtain an optimal bond financing certification. Defines "optimal bond financing certification" as a written statement by an independent qualified financial advisor that the issuance fees and aggregate interest cost to the bond issuer are reasonable without materially increasing the risks to the issuer or bond obligors.

Allows a tax credit for small issuers of tax-exempt bonds. Defines a "small issuer" as any issuer of tax-exempt bonds with an aggregate face value not exceeding $50 million in a calendar year.