ATLANTA -- In the wake of Hurricane Andrew, Dade County, Fla., has put together a proposal for federal legislation that would reduce current restrictions on tax-free debt it hopes to sell to help rebuild the county.
The proposed bill may have a tough time getting approval before the current legislative session ends on Oct. 3. Sources say it is too late for the legislation to be included in the hurricane disaster bill now sweeping through Congress and unclear whether the proposal can be included in the pending urban aid tax bill, which faces an uncertain future.
However, Florida's Sen. Connie Mack is considering introducing the measure, according to Laura Amstead, the Republican's assistant press secretary.
Scott Spear, legislative director to Rep. Clay Shaw, R-Ft. Lauderdale, said Rep. Shaw would also back the legislation. However, he said he is not aware of any plans Rep. Shaw has to introduce the bill.
One bad sign is that Congress ignored the only other known attempt in recent years to ease bond curbs in areas hit by natural disasters.
The Florida bill, which would allow the county to issue bonds that are exempt from the curbs for five years after enactment, envisions a wholesale rollback for the county of many of the prohibitions imposed by the Tax Reform Act of 1986.
Focusing on private-activity debt, it would exempt these borrowings from the state bond volume cap, the federal alternative minimum tax, and the 2% cap on issuance costs.
In addition, the bill would loosen arbitrage restrictions and allow financial institutions to deduct interest expenses for both governmental activity bonds as well as private-activity debt sold in Dade County.
However, only those private-activity bonds issued by the county or its agencies, which include the Housing Finance Authority of Dade County and the Dade County Industrial Development Authority, would be covered. Public purpose debt affected by the legislation could be issued by any governmental unit within Dade County.
Under the proposed bill, Dade County could resume issuing mortgage revenue bonds, despite the June 30 authorization expiration date, and they could be sold to provide mortgages to purchase homes if the purchase price does not exceed 110% of the average area purchase price. Under current law, this limit is 90%. The bill would also increase the present income limit for low-income residents in facilities financed by multifamily housing bonds.
The legislation would also loosen restrictions on the size of Dade County's small-issue industrial development bond issues, increasing the cap to $5 million from $1 million. The bill would also permit the county to issue tax-exempt facility bonds for convention or trade shows and eliminate limits on the qualified redevelopment bonds it sells.
"Our proposal is a county-specific wish list of changes in the tax code that would give us flexibility in selling municipal bonds in the aftermath of the hurricane," said Edward Marquez, Dade County's finance director. "The idea is to loosen limitations so we can make tax-exempt financing available more quickly than otherwise would be the case."
Mr. Marquez said the bill focuses on private-activity debt because many home owners and businesses were not fully insured when Hurricane Andrew struck and need access to low-cost financing.
He said the county's current private-activity bond volume allotment -- which was $59.2 million in 1992, or 8.9% of Florida's total allotment of $663.9 million -- is not enough to meet the demand for such financings. Damage from the hurricane, which devastated southern Florida on Aug. 24, was largely limited to Dade County. County officials say the hurricane resulted in about $7 billion in property damage.
Mr. Marquez said he is not prepared to estimate what the county's volume of issuance might be if the legislation is enacted.
The county's proposed legislation parallels a plan advanced recently by the Florida Housing Finance Agency, he said. Under that plan, the housing agency will ask Congress to approve an increase in the authority's private-activity allotment to $750 million, including $500 million of single-family bonds and $250 million of multifamily debt. In 1992, the authority's allotment was $160 million, one-quarter of the state's overall $650 million allotment.
Kenneth M. Myers, a partner at Squire, Sanders & Dempsey in Miami, one of a pool of five lawns firms serving as bond counsel to Dade County, said the proposed legislation has evolved over the last two weeks as the firms review federal regulations in determining how to best use tax-exempts to further rebuilding efforts.
"The idea behind the bill was to make it as broad as possible in terms of freeing up the county to take full advantage of tax-exempt financing for the next five years," Mr. Myers said. "If this takes federal law back to pre-tax reform days, it does so with a narrow purpose in mind, namely aiding the hurricane relief effort in Dade County."
Elliot Stern, a partner at Ruden, Barnett, McClosky, Smith, Schuster & Russell in Ft. Lauderdale, another drafter of the proposed legislation, also stressed the focus of the proposal.
"Rather than write a whole new set of rules, we chose to modify existing rules, particularly as they apply to private-activity debt," he said. "I think people understand what the current restrictions are and can understand the need to lift them in this instance." Before joining Ruden Barnett in 1989, Mr. Stern was the Treasury Department's attorney-adviser for tax-exempt bonds during a key period of changes in federal regulations concerning municipal debt.
Market participants offered support for Dade County's initiative, but warned that county officials must quickly garner broad legislative backing for the bill if they expect it to pass in this congressional session.
"This is an intriguing idea that warrants serious discussion," said Micah Green, executive vice president of the Public Securities Association. "But if it is defendable public policy for one disaster area, it would seem to be good policy for all disaster areas. I think this could be made into a more generic bill covering any place declared a federal disaster area, and this also might help it get passed."
Mr. Green said the only specific precedent for the proposed Dade County bill he knows of is legislation introduced by Rep. Fortney H. Stark, D-Calif., in 1989. Mr. Stark's bill, which would have exempted from state volume caps private-activity bonds sold to finance rebuilding in the wake of the 1989 California earthquake and Hurricane Hugo in South Carolina, was never enacted.
Congressional sources said Friday that it is too late to include the legislation as part of a supplemental appropriations bill before Congress that targets funds for hurricane cleanup in Florida, Louisiana, and Hawaii. The Senate last Tuesday passed its version of this bill, a $10.5 billion package, following approval of a $7.6 billion package by the House of Representatives a week earlier. Conferees are trying to work out a compromise between the two versions.
Sources say the most likely vehicle for the Dade County bill would be the the urban aid tax bill, which has passed the House and is awaiting final Senate action.
Once the Dade County bill is submitted, it will be reviewed by Congress' Joint Taxation Committee, which must provide an estimate of the possible loss in federal tax revenues that could result from enactment. Mr. Marquez said county officials have not calculated their own estimate.
Mitchell Rapaport, the Treasury's attorney-adviser for tax-exempts bonds, could not be reached for comment last week on the Dade County proposal. A spokesman for the department said other Treasury officials declined comment.
As the proposed legislation heads for Congress, it has the strong backing of the Dade County Housing Authority, which last Tuesday approved a resolution backing the bill.
"We are wholeheartedly behind the proposal to loosen up the rules that apply to tax-exempts in Dade County," said Milton J. Wallace, the authority's chairman. "This would clearly help us to better meet the needs of providing financing for housing initiatives in Dade County following the hurricane."