[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3630 Introduced in House (IH)]

103d CONGRESS
  1st Session
                                H. R. 3630

    To amend the Internal Revenue Code of 1986 with respect to the 
                     treatment of tax-exempt bonds.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           November 22, 1993

 Mr. Coyne (for himself, Mr. Cardin, Mr. Lewis of Georgia, Mr. Neal of 
Massachusetts, Mr. Hoagland, Mr. Kopetski, Mr. Jefferson, Mr. Brewster, 
 Mr. Shaw, and Mr. Sundquist) introduced the following bill; which was 
              referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
    To amend the Internal Revenue Code of 1986 with respect to the 
                     treatment of tax-exempt bonds.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Public Finance and 
Infrastructure Investment Act of 1993''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--

Sec. 1. Short title; amendment of 1986 code; table of contents.
Sec. 2. Definition of private activity bonds.
Sec. 3. Simplification of arbitrage rebate.
Sec. 4. Increase in small issuer exemption from pro rata allocation of 
                            interest expense of financial institutions 
                            to tax-exempt interest.
Sec. 5. Indexation of volume cap.
Sec. 6. Clarification of investment-type property.
Sec. 7. Distressed community economic development bonds.

SEC. 2. DEFINITION OF PRIVATE ACTIVITY BONDS.

    (a) Repeal of 5 Percent Unrelated and Disproportionate Private Use 
Test.--Subsection (b) of section 141 (relating to private business 
tests) is amended by striking paragraph (3).
    (b) Repeal of Lower Private Business Test for Certain Output 
Facilities.--Subsection (b) of section 141 (relating to private 
business tests) is amended by striking paragraph (4).
    (c) Private Loan Test Increased.--Subparagraph (B) of section 
141(c)(1) (relating to the private loan financing test) is amended by 
striking ``$5,000,000'' and inserting ``$15,000,000''.
    (d) Conforming Amendments.--
            (1) Subsection (b) of section 141 is amended by 
        redesignating paragraphs (5) through (9) as paragraphs (3) 
        through (7), respectively.
            (2) Paragraph (2) of section 141(d) is amended by striking 
        ``(within the meaning of subsection (b)(4)).''
            (3) Sections 142(c)(2) and 146(k)(3) are each amended by 
        striking ``141(b)(6)'' and inserting ``141(b)(4)''.
            (4) The following provisions are each amended by striking 
        ``141(b)(5)'' and inserting ``141(b)(3)'':
                    (A) Section 146(k)(3).
                    (B) Section 146(m)(1).
                    (C) Section 146(m)(2).
                    (D) Section 149(f)(4)(B)(i).
    (e) Effective Date.--The amendments made by this section shall 
apply to bonds issued after the date of the enactment of this Act.

SEC. 3. SIMPLIFICATION OF ARBITRAGE REBATE.

    (a) Expansion of Exception From Rebate for Small Issuers.--
Subparagraph (D) of section 148(f)(4) (relating to the rebate exception 
for governmental units issuing $5,000,000 or less of bonds) is amended 
by striking ``$5,000,000'' each place it appears and inserting 
``$10,000,000''.
    (b) Repeal of $100,000 Limitation on Unspent Proceeds Under 1-Year 
Exception From Rebate.--Subclause (I) of section 148(f)(4)(B)(ii) 
(relating to additional period for certain bonds for purposes of the 6-
month expenditure exception to rebate) is amended by striking ``the 
lesser of 5 percent of the proceeds of the issuer or $100,000'' and 
inserting ``5 percent of the proceeds of the issue''.
    (c) Repeal of Debt Service-Based Limitation on Investment in 
Certain Nonpurpose Investments.--Subsection (d) of section 148 
(relating to special rules for reasonably required reserve or 
replacement fund) is amended by striking paragraph (3).
    (d) Exemption From Rebate for Certain Bonds.--Subparagraph (C) of 
section 148(f)(4) is amended to read as follows:
                    ``(C) Exception from rebate from certain bonds.--If 
                all of the bonds which are part of an issue (other than 
                a refunding issue or tax and revenue anticipation 
                issue) are qualified 501(c)(3) bonds, bonds which are 
                not private activity bonds, or private activity bonds 
                issued to finance property to be owned by a 
                governmental unit or a 501(c)(3) organization, such 
                issue shall be treated as meeting the requirements of 
                paragraph (2) if--
                            ``(i) no later than the day which is 1 year 
                        after the date of issuance of such issue, at 
                        least 33\1/3\ percent of the gross proceeds 
                        have been expended for the governmental purpose 
                        of the issue;
                            ``(ii) not later than the day which is 2 
                        years after the date of issuance of such issue, 
                        at least 75 percent of the gross proceeds have 
                        been expended for the governmental purpose of 
                        the issue; and
                            ``(iii) no later than the day which is 3 
                        years after the date of issuance of such issue, 
                        at least 100 percent of the gross proceeds have 
                        been expended for the governmental purpose of 
                        the issue.
                For purposes of this paragraph only, only proceeds 
                expended for construction, reconstruction, or 
                rehabilitation (including the acquisition of land, 
                equipment and furnishings) shall be considered to have 
                been expended for the governmental purpose of the 
                issue.''
    (e) Effective Date.--The amendments made by this section shall 
apply to bonds issued after the date of the enactment of this Act.

SEC. 4. INCREASE IN SMALL ISSUER EXEMPTION FROM PRO RATA ALLOCATION OF 
              INTEREST EXPENSE OF FINANCIAL INSTITUTIONS TO TAX-EXEMPT 
              INTEREST.

    (a) In General.--Subparagraphs (C) and (D) of section 265(b)(3) are 
each amended by striking ``$10,000,000'' each place it appears and 
inserting ``$25,000,000''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to bonds issued after the date of enactment.

SEC. 5. INDEXATION OF VOLUME CAP.

    (a) General Rule.--Paragraphs (1) and (2) of section 146(d) are 
amended to read as follows:
            ``(1) In general.--The State ceiling applicable to any 
        State for any calendar year shall be the greater of--
                    ``(A) an amount equal to $50 multiplied by the 
                State population, or
                    ``(B) $150,000,000.''
        Subparagraph (B) shall not apply to any possession of the 
        United States.
            ``(2) Inflation adjustment.--In the case of any calendar 
        year beginning after 1993, each dollar amount contained in 
        paragraph (1) shall be increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment for such 
                calendar year as determined under section 1(h)(3).''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to calendar year 1993 and subsequent calendar years.

SEC. 6. CLARIFICATION OF INVESTMENT-TYPE PROPERTY.

    (a) In General.--Subparagraph (D) of section 148(b)(2) is amended 
to read as follows:
                    ``(D) any investment-type property, or''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect as if included in the amendments made by section 1301 of 
the Tax Reform Act of 1986.

SEC. 7. DISTRESSED COMMUNITY ECONOMIC DEVELOPMENT BONDS.

    (a) In General.--Paragraph (1) of section 141(e) (defining 
qualified bond) is amended by striking ``or'' at the end of 
subparagraph (F), by striking the period at the end of subparagraph (G) 
and inserting ``, or'', and by adding at the end thereof the following 
new subparagraph:
                    ``(H) a distressed community economic development 
                bond.''
    (b) Distressed Community Economic Development Bond Defined.--
            (1) In general.--Section 144 is amended by adding at the 
        end thereof the following new subsection:
    ``(d) Distressed Community Economic Development Bond.--For purposes 
of this subpart--
            ``(1) In general.--The term `distressed community economic 
        development bond' means any bond issued as part of an issue 95 
        percent or more of the net proceeds of which are to be used for 
        distressed community economic development purposes.
            ``(2) Distressed community economic development purposes.--
        For purposes of this subsection, the net proceeds of any issue 
        shall be treated as used for distressed community economic 
        development purposes to the extent such proceeds are used--
                    ``(A) to provide qualified economic development 
                facilities or land which is functionally related and 
                subordinate to such facilities, or
                    ``(B) to provide working capital required in 
                connection with the establishment of a qualified 
                business in a distressed community or the expansion of 
                such a business in such a community.
            ``(3) Qualified economic development facilities.--For 
        purposes of this subsection, the term `qualified economic 
        development facilities' means any property to which section 168 
        applies (or would apply but for section 179) if--
                    ``(A) such property was acquired by purchase (as 
                defined in section 179(d)(2)) after the date on which 
                the designation of the distressed community took 
                effect,
                    ``(B) the original use of which in the distressed 
                community commences with the person to whom the 
                financing is provided under the issue, and
                    ``(C) substantially all the use of which is in a 
                distressed community and in the active conduct of a 
                qualified business.
        For purposes of the preceding sentence, rules similar to the 
        rules of subsections (a)(2) and (b) of section 1397C shall 
        apply.
            ``(4) Qualified business.--For purposes of this 
        subsection--
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, the term `qualified business' means any 
                trade or business.
                    ``(B) Rental of real property.--The rental of any 
                building or structure located in a distressed community 
                shall be treated as a qualified business if and only 
                if--
                            ``(i) the property is not residential 
                        rental property (as defined in section 
                        168(e)(2), and
                            ``(ii) at least 50 percent of the gross 
                        rental income from the building or structure is 
                        from other qualified businesses in such 
                        community.
                    ``(C) Rental of tangible personal property.--The 
                rental of tangible personal property shall be treated 
                as a qualified business if and only if substantially 
                all of the rental of such property is by qualified 
                businesses in the distressed community or by individual 
                residents of the distressed community.
                    ``(D) Treatment of business holding intangibles.--
                The term `qualified business' shall not include any 
                trade or business consisting predominantly of the 
                development or holding of intangibles for sale or 
                license.
                    ``(E) Certain businesses excluded.--The term 
                `qualified business' shall not include any trade or 
                business consisting of--
                            ``(i) the operation of any facility 
                        described in subsection (c)(6)(B), or
                            ``(ii) operating a trade or business the 
                        principal activity of which is farming (within 
                        the meaning of subparagraph (A) or (B) of 
                        section 2032A(e)(5)), but only if, as of the 
                        close of the preceding taxable year, the sum of 
                        the following exceeds $500,000--
                                    ``(I) the aggregate unadjusted 
                                bases (or, if greater, the fair market 
                                value) of the assets owned by the 
                                taxpayer and used in such trade or 
                                business, and
                                    ``(II) the aggregate value of the 
                                assets leased by the taxpayer and used 
                                in such trade or business.
                        For purposes of subclause (II), rules similar 
                        to the rules of section 1397(b) shall apply.
            ``(5) Distressed community.--For purposes of this 
        subsection, the term `distressed community' means, with respect 
        to periods in any calendar year, any area--
                    ``(A) which is the area over which a general 
                purpose local governmental unit has jurisdiction and 
                which is designated for purposes of this subsection by 
                the governing body of such unit, and
                    ``(B) which (as of the beginning of such year) 
                meets the requirements of clause (i), (ii), or (iii) of 
                this subparagraph:
                            ``(i) Chronic economic distress.--An area 
                        meets the requirements of this clause if--
                                    ``(I) the area has experienced 
                                population loss (as determined by the 
                                1990 or subsequent census data) of not 
                                less than 5 percent, or
                                    ``(II) the area has experienced an 
                                average unemployment rate over the last 
                                5 years (as determined by the Bureau of 
                                Labor Statistics) of not less than 8 
                                percent.
                            ``(ii) Slow job growth.--An area meets the 
                        requirements of this clause if, over the last 5 
                        years--
                                    ``(I) the area has experienced job 
                                growth in the retail and manufacturing 
                                sectors of less than 3 percent, or
                                    ``(II) if data are available only 
                                for the manufacturing sector, the 
                                community has experienced no job growth 
                                in such sector, or if data are 
                                available only for the retail sector, 
                                the area has experienced job growth in 
                                such sector of less than 8.5 percent.
                            ``(iii) Major base closing.--An area meets 
                        the requirements of this clause if--
                                    ``(I) there has been a military 
                                base closing within its boundaries or 
                                adjacent thereto within the last 2 
                                years which has resulted, or will 
                                result, in the loss of not less than 
                                500 jobs, or
                                    ``(II) there has been an official 
                                notification of a military base closing 
                                within its boundaries or adjacent 
                                thereto within the next 6 months, which 
                                will result in the loss of not less 
                                than 500 jobs.
            ``(6) Prohibition of assistance for business relocations.--
                    ``(A) In general.--This subsection shall not apply 
                to any bonds issued as part of an issue if any of the 
                proceeds of such an issue are used to assist any 
                establishment in relocating from an area outside the 
                distressed community to the distressed community.
                    ``(B) Exception.--The limitation established in 
                subparagraph (A) shall not be construed to prohibit 
                assistance for the expansion of an existing business 
                entity through the establishment of a new branch 
                affiliate, or subsidiary if--
                            ``(i) the establishment of the new branch, 
                        affiliate, or subsidiary will not result in a 
                        decrease in employment in the area of original 
                        location or in any other area where the 
                        existing business entity conducts business 
                        operations, and
                            ``(ii) there is no reason to believe that 
                        the new branch, affiliate, or subsidiary is 
                        being established with the intention of closing 
                        down the operations of the existing business 
                        entity in the area of its original location or 
                        in any other area where the existing business 
                        entity conducts business operations.''
            (2) Clerical amendments.--
                    (A) The section heading for section 144 is amended 
                by striking ``qualified redevelopment bond.'' and 
                inserting ``etc.''.
                    (B) The table of sections for subpart A of part IV 
                of subchapter B of chapter 1 is amended by striking 
                ``qualified redevelopment bond.'' in the item relating 
                to section 144 and inserting ``etc.''.
    (c) Certain Rules not to Apply.--
            (1) Subsection (h) of section 147 (relating to certain 
        rules which do not apply) is amended by adding at the end 
        thereof the following new paragraph:
            ``(3) Bonds for distressed community economic development 
        facilities.--Subsection (c)(1)(A) shall be applied by 
        substituting `50 percent' for `25 percent' and subsection (d) 
        shall not apply to any bond issued as part of an issue 
        described in section 144(d)(1).''
            (2) The subsection heading for subsection (h) of section 
        147 is amended to read as follows:
    ``(h) Special Rules for Certain Bonds.--''.
    (d) Volume Cap Only Charged With 50 Percent of Distressed Community 
Economic Development Bonds.--Subsection (g) of section 146 (relating to 
an exception for certain bonds from volume cap) is amended by striking 
``and'' at the end of paragraph (3), by striking the period at the end 
of paragraph (4) and inserting ``, and'', and by adding at the end 
thereof the following new paragraph:
            ``(5) 50 percent of any bond issued as part of an issue 
        described in section 144(d)(1) (relating to distressed 
        community economic development facilities).''
    (e) Penalties for Loans Made to Businesses That Cease To Be 
Distressed Community Economic Development Businesses, Etc.--Subsection 
(b) of section 150 (relating to change in use) is amended by adding at 
the end thereof the following new paragraph:
            ``(6) Distressed community economic development bonds.--In 
        the case of any qualified economic development facility with 
        respect to which financing was provided by an issue described 
        in section 144(d)(1):
                    ``(A) No deduction allowed.--No deduction shall be 
                allowed under this chapter for interest on such 
                financing which accrues during the period beginning on 
                the first day of the calendar year which includes the 
                date on which--
                            ``(i) the trade or business to which the 
                        financing was provided ceases to be a qualified 
                        business, or
                            ``(ii) substantially all of the use of such 
                        facility with respect to which the financing 
                        was provided ceases to be in a distressed 
                        community.
                 For purposes of this subparagraph, the term 
                `distressed community' means any area which qualifies 
                as a distressed community under section 144(d)(5) as of 
                the time the financing was provided without regard to 
                any subsequent revocation or termination.
                    ``(B) Penalty imposed on distressed community 
                economic development business.--If at any time while 
                such financing is outstanding--
                            ``(i) such facility ceases to be in use in 
                        a qualified business, or
                            ``(ii) substantially all of the use of such 
                        facility ceases to be in a distressed community 
                        (as so defined),
                 there is hereby imposed on such business to which such 
                financing was provided a penalty equal to 1.25 percent 
                of the portion of such financing which is outstanding 
                immediately before such cessation. Such penalty shall 
                be assessed and collected by the Secretary.
                    ``(C) Exception for bankruptcy.--Subparagraphs (A) 
                and (B) shall not apply to any cessation resulting from 
                bankruptcy.''
    (f) Bank Interest Deduction.--
            (1) In general.--Clause (ii) of section 265(b)(3)(B) 
        (relating to exception for certain tax-exempt obligations) is 
        amended--
                    (A) by striking ``or'' at the end of subclause (I),
                    (B) by redesignating subclause (II) as subclause 
                (III), and
                    (C) by inserting after subclause (I) the following 
                new subclause:
                                    ``(II) any bond issued as part of 
                                an issue described in section 
                                144(d)(1), or''.
            (2) Conforming agreement.--Subclause (I) of section 
        265(b)(3)(B)(i) (defining qualified tax-exempt obligation) is 
        amended by inserting ``or is an obligation issued as part of an 
        issue described in section 144(d)(1)'' after ``issuer''.

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HR 3630 IH----2