WASHINGTON - The Senate approved legislation by voice vote Wednesday night that would fully exempt issuers of tax-exempt high-speed rail bonds from the private-activity bond volume cap.
The measure is attached to a comprehensive energy bill that the Senate passed Thursday on a 93-to-3 vote. The energy bill vote clears that the way for the Senate measure to be reconciled with an energy bill passed by the House May 27 that does not contain a rail bond provision.
Senate leaders had tried unsuccessfully to kill the rail bond amendment earlier on Wednesday, urging senators to vote against it because it did not directly relate to energy issues in the overall bill.
The Senate amendment, sponsored by Sen. Steven D. Symms, R-Idaho, and Sen. Bob Graham, D-Fla., would expand a 1988 law that permits tax-exempt financing for high-speed rail projects and exempts 75% of a high-speed rail issue from the volume cap.
At the time the 1988 law was enacted, issuers and underwriters hailed the measure. But they quickly found a catch -- namely, the need to obtain a volume cap allocation for 25% of a high-speed rail bond issue. Such issues are so large that even getting an allocation for one-quarter of the issue could dry up the volume cap of a small state or put a significant dent in a large state's cap.
The amendment would completely do away with the requirement that 25% of a high-speed rail issue is subject to the cap, if the facilities being financed are governmentally owned.
High-speed rail systems are being planned in Texas and Florida, and in two regions, according to the Public Securities Association. One region would encompass parts of Illinois, Indiana, and Michigan, and the other California and Nevada.
In addition, Amtrak is considering upgrading its Northeast Corridor service to accommodate high-speed rail, "and at least a dozen other potential route plans have been investigated for high-speed rail service," the association said in a July 21 letter to Sen. Lloyd Bentsen, D-Tex., chairman of the Senate Finance Committee.
Earlier in the week, the House resoundingly rejected a separate bill that would have exempted high-speed speed rail bonds from the volume cap.
The measure was crushed on a 369-to-48 vote after local governments mounted a massive lobbying campaign against a provision in the measure. That provision would have required localities to sort out fees included in property tax bills that are not eligible to be deducted from federal income taxes.
The overall energy bill had been held up for weeks because three senators objected to other energy provisions in the measure and had threatened to filibuster. Early this week the Senate leadership finally worked out agreements that accommodated those senators.
The Senate's bill also includes a provision that would end the requirement that nuclear decommissioning trust funds invest only in Treasury securities and tax-exempt municipal bonds. Municipal market participants have warned that the provision could decrease demand for tax-exempts.
The House's energy bill would also eliminate investment restrictions on nuclear trust funds, and it would lower the funds'34% tax rate to 20%.
In addition, the House energy bill contains a provision designed to increase the supply of bank-qualified bonds.
Under current law, banks may deduct 80% of the cost of carrying tax-exempt bonds only from issuers who expect to sell less than $10 million of governmental bonds annually. The provision would increase that limit to $20 million.
The Senate bill also includes a provision that would exempt from the volume cap bonds issued by hydroelectric facilities to finance environmental improvements mandated by federal energy regulators.
Sen. Bob Packwood, R-Ore., who sponsored the proposal, said it was needed to make it easier for the Mid-Columbia River Power Project in Washington State to comply with federal environmental laws.