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1 1 (January 31, 2020)

handle is hein.crs/govbhwy0001 and id is 1 raw text is: Researh Sevice Advance Refunding Bonds and P.L. 115-97 Updated January 31, 2020 On January 29, 2020, the chairs of the House Transportation and Infrastructure, Energy and Commerce, and Ways and Means Committees released the Moving Forward Framnework, which would invest roughly $760 billion in infrastructure projects over a five-year period. Among other things, the draft would reinstate the ability to issue federally tax-exempt advance refunding bonds, whose issuance authority was repealed by the 2017 tax revision (P.L. 115-97; sometimes referred to as the Tax Cuts and Jobs Act, or TCJA). This Insight briefly describes advance refunding bonds, summarizes recently enacted changes, and discusses policy arguments and new proposals to modify advance refunding capabilities. What Are Advance Refunding Bonds? Refunding bonds are bonds that are issued to replace existing (outstanding) bonds previously issued for a given purpose. Refunding bonds are used by the issuer (borrower) to take advantage of borrowing terms that are more favorable than those present at the time the existing bonds were issued, which may be realized through lower interest rates or more attractive agreements related to the project (known as covenants) funded by the bond. Current ref inding describes cases where the existing bond is redeemed within 90 days of the refunding bond issue date. Advance refunding describes cases where the existing bond and refunding bond are both outstanding for a period of longer than 90 days. Advance refunding is typically used when the existing bond has a call protection, or safeguard against a bond being paid off earlier than its maturity date, that does not allow for immediate redemption of the existing bond. The Internal Revenue Code (26 U.S.C. § 149) stipulates that all bonds issued after 1985 must be redeemed at the earliest date possible if an advance refunding results in present value savings to the borrower. Federal Tax Law and Changes Made by P.L. 115-97 Generally, interest income earned from state and local bonds issued for a public (governmental) purpose is exempted from federal income taxation. The tax exemption serves to reduce interest rates and subsequent borrowing costs on such tax-exempt (municipal) bonds. Bonds that are not issued for a public purpose but which have been deemed by Congress to have substantive public benefits may also be exempted from federal income taxation if they are classified as qualified private activity bonds. Congressional Research Service https://crsreports.congress.gov IN11079 CRS NStGHT Prepaimed for Mernbei-s and Committees o.i C- --q .. . . . . . . . ...----------------------------------------------------------------------------------------------------------------------------------------------------------------------