WASHINGTON -- Issuers of mortgage bonds and industrial development bonds are gearing up to go to market for the first time in over a year as President Clinton prepares to sign into law today permanent extensions of the authority to issue those bonds.
The permanent extensions are contained in the huge deficit-reduction package that the House and Senate approved by razor-thin margins late last week. The measure, which President Clinton is scheduled to sign at an 11 a.m. ceremony at the White House, also includes provisions to ease volume cap restrictions on high-speed rail bonds and to expand the use of bonds in enterprises zones.
On the negative side for the municipal market, the budge package includes a provision to phase in so-called direct student lending by colleges, which education lobbyists have warned could eliminate the need for tax-exempt student loan bonds.
For mortgage bond and IDB issuers, one potential obstacle to issuing quickly is the need to obtain an allocation under the 1993 private-activity volume cap. Lobbyists said that because it is so late in the year, some issuers may find little cap authority left in their states.
"The toughest thing this year is going to be getting cap allocation," said Micah Green, the executive vice president of the Public Securities Association. "If they get cap allocation, those states that need the capital will come to market quickly."
But some mortgage bond issuers will not have to worry about an allocation because they stockpiled left-over authority from previous years. In fact, 11 states have been hoarding nearly $1 billion in 1992 authority. The permanent extension is retroactive to June 30, 1992, the date on which the exemption expired, putting to rest legal questions raised earlier this year about the validity of those carryforward allocations.
Thus, some issuers for whom the cap allocation question is a moot point say they will be ready to issue in the coming weeks.
"There are state housing agencies that are out of money and have been calling to ask when the thing's going to get signed," said John T. McEvoy, the executive director of the National Coucil of State Housing Agencies. "A significant number of state agencies are headed for market just as soon as [the paperwork] is done."
"We're going to be moving to market very quickly," said David Pinson, the executive director of the Georgia Housing and Finance Authority. "It's staggering to think this [wait for a permanent extension] is finally over," said Pinson, adding that the expects the authority to be ready to issue late next month or in early October.
Issuers of small-issue IDBs may be forced to move more slowly, because the law does not permit them to carry forward unused authority from previous years, lobbyists said.
"I think you will see IDBs going to market in October or November," said a lobbyist who asked not to be identified. Because of the need to obtain a cap allocation, "I think a 60-day window, at a minimum, is what you're looking at," the lobbyist added.
The October-November period is when the Massachusetts Industrial Finance Agency will probably come to market, said Meg Kelleher, the agency's chief operating officer.
Keller said the agency expects to issue between $7 million and $12 million in IDBs for between three and five projects. Behind those deals in the agency's pipeline are about $100 million in bonds for 22 companies that may be issued this fall or next spring, she added.
The agency has been keeping in touch with the Massachusetts Department of Finance and Administration, the allocator of the cap in that state, and expects to receive shortly a $40 million allocation. Kelleher said.
For issuers of high-speed rail bonds, the package ends the requirement that they obtain an allocation for 25% of each issue, though the provision applies only to government-owned projects. The provision is effective for bonds issued after Dec. 31, 1993.
Also in the package is a plan to create 104 enterprises zones in economically distressed areas where tax incentives would be offered to start up new businesses or retain existing ones.
The 104 zones include nine "empowerment zones" that would receive a wide array of federal benefits and 95 "enterprise communities" that would be eligible for a small number of benefits.
For both types of zones, the plan would permit the issuance of a new category of exempt-facility bonds to finance business in the zones. The per-business limit in each zone is $3 million, and there is also an overall $20 million limit on the amount any one business can benefit from enterprises zone bonds.
House bill provisions that would have made the bonds bank deductible and would have partially exempted them from the private-activity volume cap were dropped from the final bill by tax conferees.
The final package contains three provisions that lobbyist have warned could be harmful to the municipal market. The first would require securities firms to report, for tax purposes, the market value of municipal bonds and other securities they hold in their portfolios.
Secondly, the bill would require bonds purchased at a market discount after April 30, 1993, to be taxed as ordinary income rather than as capital gains.
A third provision would phase in so-called direct student lending by colleges, a move that could end the Guaranteed Student Loan program, and the need for student loan bonds, by 1999.
Under the Guaranteed Student Loan program, the federal government guarantees commercial loans made to students by banks, which in turn sell the loans to state education authorities. The authorities often finance their purchases with tax-exempt bonds.
The provision in the budget and tax package would require the federal government to give seed money to colleges to set up revolving loans funds for student aid. The package would permit the level of direct loans to represent up to 5% of total student loans in the first year after enactment, 40% in the second year, 50% in the third and fourth years, and 60% in the fifth.
During the fourth year, Congress would be required to examine the new program and determine whether to extend it to all student loans or scrap the idea and stick with the Guaranteed Student Loan program.