Clean renewable water supply bonds

(a)

In general

Part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to credits against tax) is amended by inserting after section 54 the following new section:

54A.

Credit to holders of clean renewable water supply bonds

(a)

Allowance of credit

If a taxpayer holds a clean renewable water supply bond on 1 or more credit allowance dates of the bond occurring during any taxable year, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of the credits determined under subsection (b) with respect to such dates. (b)

Amount of credit

(1)

In general

The amount of the credit determined under this subsection with respect to any credit allowance date for a clean renewable water supply bond is 25 percent of the annual credit determined with respect to such bond. (2)

Annual credit

The annual credit determined with respect to any clean renewable water supply bond is the product of— (A)the credit rate determined by the Secretary under paragraph (3) for the day on which such bond was sold, multiplied by (B)the outstanding face amount of the bond. (3)

Determination

For purposes of paragraph (2), with respect to any clean renewable water supply bond, the Secretary shall determine daily or cause to be determined daily a credit rate which shall apply to the first day on which there is a binding, written contract for the sale or exchange of the bond. The credit rate for any day is the credit rate which the Secretary or the Secretary’s designee estimates will permit the issuance of clean renewable water supply bonds with a specified maturity or redemption date without discount and without interest cost to the qualified issuer. (4)

Credit allowance date

For purposes of this section, the term credit allowance date means— (A)March 15, (B)June 15, (C)September 15, and (D)December 15.

Such term also includes the last day on which the bond is outstanding.

(5)

Special rule for issuance and redemption

In the case of a bond which is issued during the 3-month period ending on a credit allowance date, the amount of the credit determined under this subsection with respect to such credit allowance date shall be a ratable portion of the credit otherwise determined based on the portion of the 3-month period during which the bond is outstanding. A similar rule shall apply when the bond is redeemed or matures. (c)

Limitation based on amount of tax

The credit allowed under subsection (a) for any taxable year shall not exceed the excess of— (1)the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over (2)the sum of the credits allowable under this part (other than subpart C, section 54, section 1400N(l), and this section). (d)

Clean renewable water supply bond

For purposes of this section— (1)

In general

The term clean renewable water supply bond means any bond issued as part of an issue if— (A)the bond is issued by a qualified issuer, (B)95 percent or more of the proceeds of such issue are to be used for capital expenditures incurred by qualified borrowers for 1 or more qualified projects, (C)the qualified issuer designates such bond for purposes of this section and the bond is in registered form, and (D)the issue meets the requirements of subsection (g). (2)

Qualified project; special use rules

(A)

In general

The term qualified project means any— (i)qualified desalination facility, (ii)qualified recycled water facility, (iii)qualified groundwater remediation facility, or (iv)facility that is functionally related and subordinate to a facility described in clause (i), (ii), or (iii),

in each case, owned by a qualified borrower.

(B)

Refinancing rules

For purposes of paragraph (1)(B), a qualified project may be refinanced with proceeds of a clean renewable water supply bond only if the indebtedness being refinanced (including any obligation directly or indirectly refinanced by such indebtedness) was originally incurred by a qualified borrower after the date of the enactment of this section. (C)

Reimbursement

For purposes of paragraph (1)(B), a clean renewable water supply bond may be issued to reimburse a qualified borrower for amounts paid after the date of the enactment of this section with respect to a qualified project, but only if— (i)prior to the payment of the original expenditure, the qualified borrower declared its intent to reimburse such expenditure with the proceeds of a clean renewable water supply bond, (ii)not later than 60 days after payment of the original expenditure, the qualified issuer adopts an official intent to reimburse the original expenditure with such proceeds, and (iii)the reimbursement is made not later than 18 months after the date the original expenditure is paid. (D)

Treatment of changes in use

For purposes of paragraph (1)(B), the proceeds of an issue shall not be treated as used for a qualified project to the extent that a qualified borrower or qualified issuer takes any action within its control which causes such proceeds not to be used for a qualified project. The Secretary shall prescribe regulations specifying remedial actions that may be taken (including conditions to taking such remedial actions) to prevent an action described in the preceding sentence from causing a bond to fail to be a clean renewable water supply bond. (E)

Environmental impact

A project shall not be treated as a qualified project under subparagraph (A) unless such project is designed to comply with regulations issued under subsection (m) relating to the minimization of the environmental impact of the project. (e)

Maturity limitation

A bond shall not be treated as a clean renewable water supply bond if the maturity of such bond exceeds 20 years. (f)

Credit included in gross income

Gross income includes the amount of the credit allowed to the taxpayer under this section (determined without regard to subsection (c)) and the amount so included shall be treated as interest income. (g)

Special rules relating to expenditures

(1)

In general

An issue shall be treated as meeting the requirements of this subsection if, as of the date of issuance, the qualified issuer reasonably expects— (A)at least 95 percent of the proceeds of such issue are to be spent for 1 or more qualified projects within the 5-year period beginning on the date of issuance of the clean renewable water supply bond, (B)a binding commitment with a third party to spend at least 10 percent of the proceeds of such issue will be incurred within the 6-month period beginning on the date of issuance of the clean renewable water supply bond or, in the case of a clean renewable water supply bond the proceeds of which are to be loaned to 2 or more qualified borrowers, such binding commitment will be incurred within the 6-month period beginning on the date of the loan of such proceeds to a qualified borrower, and (C)such projects will be completed with due diligence and the proceeds of such issue will be spent with due diligence. (2)

Extension of period

Upon submission of a request prior to the expiration of the period described in paragraph (1)(A), the Secretary may extend such period if the qualified issuer establishes that the failure to satisfy the 5-year requirement is due to reasonable cause and the related projects will continue to proceed with due diligence. (3)

Failure to spend required amount of bond proceeds within 5 years

To the extent that less than 95 percent of the proceeds of such issue are expended by the close of the 5-year period beginning on the date of issuance (or if an extension has been obtained under paragraph (2), by the close of the extended period), the qualified issuer shall redeem all of the nonqualified bonds within 90 days after the end of such period. For purposes of this paragraph, the amount of the nonqualified bonds required to be redeemed shall be determined in the same manner as under section 142. (h)

Special rules relating to arbitrage

(1)

In general

Except as provided in paragraph (2), a bond which is part of an issue shall not be treated as a clean renewable water supply bond unless, with respect to the issue of which the bond is a part, the qualified issuer satisfies the arbitrage requirements of section 148 with respect to proceeds of the issue. (2)

Exceptions

(A)

In general

For purposes of paragraph (1)— (i)the proceeds of an issue qualify for a temporary period of 5 years beginning on the date of issuance of the issue (or, if a longer period is approved by the Secretary under subsection (g)(2), such longer period), (ii)the credit allowed under subsection (a) shall be disregarded for purposes of computing the yield on the issue, (iii)section 148(b)(3) (relating to exception to definition of investment property for certain tax-exempt bonds) shall not apply, (iv)the bonds shall not be treated as private activity bonds for purposes of section 148(f)(4)(A) (relating to rebate exception for amounts in a bona fide debt service fund), (v)section 148(f)(4)(C) (relating to exception from rebate for certain proceeds to be used to finance construction expenditures) shall apply to the available construction proceeds of an issue, and (vi)section 148(f)(4)(D) (relating to exception from rebate for certain small issuers) shall not apply. (B)

Additional rebate spending exception

For purposes of paragraph (1), an issue of clean renewable water supply bonds shall be treated as meeting the requirements of section 148(f)(2) (relating to payment of rebate amounts) if the proceeds of the issue are used to pay capital expenditures for one or more qualified projects in accordance with the following schedule— (i)10 percent within 6 months, (ii)30 percent within 1 year, (iii)60 percent within 2 years, and (iv)100 percent within 3 years. (3)

Regulatory authority

The Secretary may prescribe such regulations as are necessary or appropriate to carry out the purposes of this subsection, including regulations which specify additional exceptions to the requirements of section 148 for clean renewable water supply bonds. (i)

Definitions

For purposes of this section— (1)

Bond

The term bond includes any obligation. (2)

Governmental body

The term governmental body means any State, territory, possession of the United States, the District of Columbia, Indian tribal government, and any political subdivision thereof. (3)

Local water company

The term local water company means any entity responsible for providing water service to the general public (including electric utility, industrial, agricultural, commercial, or residential users) pursuant to State or tribal law. (4)

Pooled financing bond

The term pooled financing bond shall have the meaning given such term by section 149(f)(6)(A). (5)

Qualified borrower

The term qualified borrower means a governmental body or a local water company. (6)

Qualified desalination facility

The term qualified desalination facility means any facility that is used to produce new water supplies by desalinating seawater, groundwater, or surface water if the facility’s source water includes chlorides or total dissolved solids that, either continuously or seasonally, exceed maximum permitted levels for primary or secondary drinking water under Federal or State law (as in effect on the date of issuance of the issue). (7)

Qualified groundwater remediation facility

The term qualified groundwater remediation facility means any facility that is used to reclaim contaminated or naturally impaired groundwater for potable use if the facility’s source water includes constituents that exceed maximum contaminant levels regulated under the Safe Drinking Water Act (as in effect on the date of enactment of this Act). (8)

Qualified issuer

The term qualified issuer means— (A)a governmental body, or (B)in the case of a State or political subdivision thereof (as defined for purposes of section 103), any entity qualified to issue tax-exempt bonds under section 103 on behalf of such State or political subdivision. (9)

Qualified recycled water facility

The term qualified recycled water facility means any facility that is used to reclaim wastewater produced by the general public (including electric utility, industrial, agricultural, commercial, or residential users) to the extent such reclaimed wastewater is re-used for a beneficial use. (j)

Special rules relating to pool bonds

No portion of a pooled financing bond may be allocable to any loan unless the borrower has entered into a written loan commitment for such portion prior to the issue date of such bond. (k)

Bonds held by regulated investment companies

If any clean renewable water supply bond is held by a regulated investment company, the credit determined under subsection (a) shall be allowed to shareholders of such company under procedures prescribed by the Secretary. (l)

Information reporting

Issuers of clean renewable water supply bonds shall submit reports similar to the reports required under section 149(e). (m)

Regulations

The Secretary shall prescribe regulations to carryout this section, including regulations promulgated in consultation with Director of the Environmental Protection Agency to ensure the environmental impact of qualified facilities is minimized.

(b)

Reporting

Subsection (d) of section 6049 of such Code (relating to returns regarding payments of interest) is amended by adding at the end the following new paragraph:

(9)

Reporting of credit on clean renewable water supply bonds

(A)

In general

For purposes of subsection (a), the term interest includes amounts includible in gross income under section 54A(f) and such amounts shall be treated as paid on the credit allowance date (as defined in section 54A(b)(4)). (B)

Reporting to corporations, etc

Except as otherwise provided in regulations, in the case of any interest described in subparagraph (A), subsection (b)(4) shall be applied without regard to subparagraphs (A), (H), (I), (J), (K), and (L)(i) of such subsection. (C)

Regulatory authority

The Secretary may prescribe such regulations as are necessary or appropriate to carry out the purposes of this paragraph, including regulations which require more frequent or more detailed reporting.

(c)

Clerical amendments

The table of sections for part IV of subchapter A of chapter 1, as amended by this Act, is amended by inserting after section 54 the following new item:

Sec. 54A. Credit to holders of clean renewable water supply bonds.

(d)

Issuance of regulations

The Secretary of Treasury shall issue regulations required under section 54A of the Internal Revenue Code of 1986 (as added by this section) not later than 120 days after the date of the enactment of this Act. (e)

Effective date

The amendments made by this section shall apply to bonds issued after the date of the enactment of this Act.