Opinion ID: 1538681
Heading Depth: 1
Heading Rank: 3

Heading: Facilities begun before the effective date of statute and resolution

Text: Wilson contends that the loan proceeds may not validly be applied to the refinancing of pollution abatement facilities acquired prior to June 1, 1972, the effective date of Chapter 352 of the Acts of 1972 which placed specific reference to pollution control facilities in § 266A. He similarly contends that the proceeds may not be used to finance work done prior to the passage of the resolution by the County on August 28, 1973. Section 266A (d) states that [t]he term [pollution control facilities] includes any pollution control facilities utilized by any public service company as defined in Article 78 of this Code and includes but shall not be limited to pollution control facilities which can be financed by bonds determined to be tax exempt under provisions of the Internal Revenue Code of 1954, the italicized portion having been added by Chapter 396 of the Acts of 1973. In divining the legislative intent of the General Assembly of Maryland, we thus must focus our attention upon the Internal Revenue Code. Although there has been a shift in the exemption from federal taxation accorded interest on industrial development bonds as pointed out by A. Early, op. cit. 91, § 103 (c) (4) provides for exemption of interest on such bonds connected with air or water pollution control facilities. Treas. Reg. § 1.103-8 (a) (5) (1972) limits the application of that exemption to those bonds issued to finance facilities commenced after September 2, 1972, if the authorizing resolution or ordinance was adopted prior to the issuance of the bonds, with one limited exception. The present regulations permit pollution control revenue bonds (PCRB's) to be issued to finance facilities whose construction commenced prior to September 2, 1972, only if the bond-authorizing ordinance or resolution is adopted prior to the date the entire facility is first placed in service. Treas. Reg. § 1.103-8 (a) (5) (ii) (1972). Thus, in the case at bar, the Company's facilities are eligible for financing by PCRB's which probably will enjoy the federal tax exemption because the resolution was adopted prior to the date the entire facilities have been placed in service. The term placed in service, according to those regulations, shall not be earlier than the date on which  (a) It has reached a degree of completion which would permit operation at substantially the level for which it is designed, and (b) It is, in fact, in operation at such level. Accordingly, there is a definite limitation on the issuance of PCRB's under the Act. As a practical matter, no bonds will be issued under the Act unless the federal income tax exemption is available. If the exemption is not available, use of the Act would only complicate an already complicated transaction by involving a political subdivision without purpose. The quoted regulations represent a reasonable effort on the part of the Treasury Department to deal with the transition period between the time preceding September 2, 1972, when there were no clear precedents and only proposed regulations, and the time following September 2, 1972. The Treasury no doubt thought it would be unfair and arbitrary simply to select a date such as September 2, 1972, and preclude the issuance of PCRB's to finance facilities commenced prior to that date. Accordingly, the transition regulation was adopted. Indeed, the Internal Revenue Service contemplated the replacement of temporary or construction financing with the permanent financing provided by the proceeds of the tax-exempt bonds. In the case of pollution control facilities, the construction of which was commenced on or after September 2, 1972, [t]emporary construction or other financing of a facility prior to the issuance of State or local governmental obligations to provide such a facility will not cause such facility to be one which is not described in this subdivision. Treas. Reg. § 1.103-8 (a)(5)(iii) (1972). It was in the light of the regulations adopted in 1972 that the General Assembly again amended § 266A in 1973. The original definition of pollution control facilities was phrased in such a manner so as not to be limited by the tax-exempt status of the bonds. The 1973 amendment, however, expressly provided that, at a minimum, the term pollution-control facilities was to include pollution control facilities which could be financed by tax-exempt bonds under the Internal Revenue Code. In other words, by expressly incorporating by reference the Internal Revenue Code of 1954, the General Assembly assured that the definition of pollution control facilities would include all facilities which could be financed with tax-exempt bonds under the Internal Revenue Code and its pertinent final regulations, thus assuring the same treatment at both state and federal levels for facilities under construction before September 2, 1972. It is said in Goldberg and Robinson, op. cit.: Basic to any discussion is whether the industrial revenue bond act in any particular state allows a municipality or authority (the `Issuer') to issue industrial revenue bonds to finance a project that is under construction or which has already been constructed. In a number of states the act specifically provides that the Issuer can refinance existing facilities if such refinancing is deemed by the Issuer to be in the public interest. In most states, however, such a conclusive provision is not present. Frequently, though, the Issuer is authorized to issue industrial development revenue bonds to `acquire' existing facilities. This provision has been deemed broad enough to allow the Issuer to acquire facilities at any stage of construction, White v. City of Hickman, 415 S.W.2d 379 (Ky. 1967) or after construction is complete, Nuessner v. McNare, 157 S.E.2d 410 (S.C. 1967). The authority to provide such financing is limited, however, by the requirement that such financing must serve a `public purpose.' Manning v. Fiscal Court of Jefferson County, 405 S.W.2d 755 (Ky. 1966). Id. at 386-87. It is to be noted that the Maryland statute refers to acquisition. We find persuasive the language of the South Carolina Court in Nuessner v. McNair, 250 S.C. 257, 157 S.E.2d 410 (1967): The question for decision here is whether it was the intention of the Legislature that the benefits of the [Industrial Revenue Bond] Act were available to industries which might have located in South Carolina prior to the passage and effective date of said Act but whose projects were not then completed or financed. Id. at 260.    The Legislature, in authorizing the several counties of this state to exercise the powers delineated in Section 3 of the Act, did not limit the counties to the acquisition of a project which had been commenced after the effective date of the Act. There is no reference in the Act as to when a project must be commenced before a county is authorized to acquire it. It seems to us that if the Legislature intended to deny to the counties the right to acquire projects commenced before the effective date of the Act, it would have expressly so stated. It is our conclusion that the Legislature intended the benefits of the Act to be as far-reaching as possible and that the time of the commencement of the construction of a project had no significance as to whether the provisions of the Act were available if the projects were essential to the state's economy and the welfare of its people. The effective date of the Act, in our opinion, applies solely to the time when the county could exercise the powers therein granted. Id. at 262-63. Similar logic is applicable to the contention relative to facilities constructed before the passage of the County's resolution.