Magazine article Nation's Cities Weekly

Cities May Benefit from IRS Simplification of Arbitrage Rules

Magazine article Nation's Cities Weekly

Cities May Benefit from IRS Simplification of Arbitrage Rules

Article excerpt

The Internal Revenue Service last week proposed a significant overhaul and simplification of its current arbitrage rules which could give cities an unexpected new exemption from rebate requirements on municipal tax exempt bonds.

The proposed rules are not only simpler and shorter than the existing rules, but could lead to millions in dollars worth of savings for cities and towns. The City of Bangor, Maine, for instance, last year reported it was holding over $220,000 in reserve to meet federal rebate mandates--funds which the city would far prefer to spend to meet other unfunded federal mandates or local needs and priorities. While the proposed simplifications would not mean savings for every city, they do promise relief for many.

The 178-page set of the proposed rules (21 CFR 1, FI-3692) is about one-third the size of the existing regulations. It was scheduled to be printed in the November 7 Federal Register, after the Weekly went to print. The final rules are to be issued in final form next year after public comment.

The proposed rules, would provide most cities and towns with a new 18-month spending exception from rebate requirements. Municipal issuers would be exempt from the rebate mandate if they spent 30 percent of their bond proceeds in six months, bond proceeds in six months, another 30 percent in one year, and the remainder in 18 months.

The new spending exception would be an alternative the current six-month spending exception, which most cities claim is too short, and to the two-year spending exception, which many cities say is too complex and unworkable because of the current tax laws and regulations. …

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