Cities Win One, Lose One against Uncle Sam

Beginning of article

Cities gained a victory and a measure of respect in two different municipal finance arenas last week, demonstrating that cities can take on the federal government, preemption, and control. The city of Columbus, Ohio, gained a win over the Internal Revenue Service (IRS) in a case where the IRS challenged the city's authority to issue $25 million worth of municipal tax-exempt bonds. Meanwhile a U.S. circuit court of appeals awarded a victory to the U.S. government over a small town in Maine, but only after the U.S. Justice Department changed its policy and promised to provide cities and towns with written notice in the future with regard to all real estate forfeiture actions.

Tax Court Win

In a victory for Columbus, a U.S. Tax Court ruled for the city that bonds it had proposed to issue in 1993 are not arbitrage bonds as the Internal Revenue Service has argued. The ruling cleared a federal hurdle that has prevented Columbus from selling more than $25 million in tax-exempt pension bonds. The city plans to wait out the 90-day appeal period and then issue 20-year tax-exempt bonds to take out $25.1 million in variable-rate taxable bond anticipation notes it has had outstanding since repaying the state in 1994.

The IRS is reviewing the decision and has 90 days to …