I 111th CONGRESS 2d Session H. R. 5189 IN THE HOUSE OF REPRESENTATIVES April 29, 2010 Mr. Hinchey introduced the following bill; which was referred to the Committee on Ways and Means A BILL To amend the Internal Revenue Code of 1986 to require that the issuer of a tax-exempt State or local obligation obtain a certification that the interest rate with respect to such obligation is reasonable without materially increasing the risks associated with the obligation.

1.

Short title

This Act may be cited as the Municipal Finance Improvements Act of 2010.

2.

Certification of cost of financing of municipal obligations

(a)

In general

Section 149 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: (h)

Certification of cost of financing

(1)

In general

Section 103(a) shall not apply to any State or local bond issuance, including any private activity bond issuance, unless, with respect to the issue of which such bond is a part, the requirements of paragraph (2) are met. (2)

Optimal bond financing certification requirement

The requirements of this paragraph are met with respect to an issue if the issuer of such bonds has received an optimal bond financing certification not later than the date such issue is originally issued. (3)

Optimal bond financing certification

For purposes of this subsection— (A)

In general

The term optimal bond financing certification means a written statement by an independent qualified financial adviser which— (i)certifies that, in the opinion of an independent qualified financial adviser, the fees associated with the issuance and the aggregate interest cost to such issuer with respect to such bonds are reasonable compared with fees and interest rate cost available in the financial marketplace in which such bonds may be sold, without materially increasing the risks to the issuer or bond obligors, and (ii)details the reasons supporting the certification described in subparagraph (A) (including the effect the selected legal structure has on the aggregate interest cost). (B)

Qualified independent financial advisor

(i)

In general

The term qualified independent financial advisor means an individual who— (I)has the professional qualifications required to advise the issuer of such bond as to the financial cost of such issue and the appropriate legal structures and financing alternatives for optimization of the cost of such issue, and (II)has a legal fiduciary duty to the issuer (whether under common law, or otherwise), which includes the duty to advise without regard to the financial or other interest of the individual. (ii)

Related or interested parties excluded

For purposes of this subparagraph, an individual shall not be treated as an independent qualified financial adviser if— (I)such adviser is, is employed by, or is employed by any person who is owned (directly or indirectly) by, the underwriter of such bond, (II)such adviser is providing any other financial advice with respect to the issuance of such bond for which such advisor is receiving remuneration (or is employed by, or is employed by any person who is owned (directly or indirectly) by, such a person), or (III)the remuneration of such adviser is contingent, directly or indirectly, on the issuance of such issue. (iii)

Special rule for employees of State or local government

An individual shall not fail to be treated as qualified independent financial advisor solely by reason of being an employee of the State or local government with respect to which the bond is being issued. (4)

Optimal bond financing certification

The issuer of any State or local bond issuance shall make publicly available the optimal bond financing certification with respect to such issuance. (5)

Callable bonds

(A)

In general

A callable State or local bond issue shall not be treated as continuing to meet the requirements of paragraph (2) unless the issuer of such bonds has reasonably determined as of the first date on which outstanding bonds may be called, and annually thereafter, that exercising such right to call such bonds and refunding such bonds will not result in a substantial economic savings to the issuer, or private activity user, of such bonds in the marketplace in which such bonds would be called and refunded. (B)

Callable State or local bond

For purposes of this paragraph, the term callable State or local bond issue means a bond issue which provides for a presently exercisable optional right to the issuer, or private activity user of the proceeds, of such bonds to retire all or part of such bonds at a stated date, but only if the remaining term to original maturity of such bonds is more than 23 months after the date that such optional right is first exercisable, with or without the payment of any premium to the holders of such bonds. (6)

Tax credit bonds

For purposes of this subsection, the term State or local bond shall include any tax credit bond (as defined in section 853A(e)(1)(A)). . (b)

Effective date

(1)

In general

Except as provided in paragraph (2), the amendments made by this section shall apply to obligations issued after the date of the enactment of this Act. (2)

Callable bonds

In the case of callable obligations originally issued or refunded before the date of the enactment of this Act, the amendments made by this section shall apply to any such obligation that may be called, in whole or in part, before, on, or after the date of the enactment of this Act.

3.

Small issuer credit

(a)

In general

Subchapter B of chapter 65 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

6433.

Small issuer credit

(a)

In general

In the case of bond issued by a small issuer, such issuer shall be allowed as a credit with respect to such bond an amount equal to 0.05 percent of the principle amount of such bond which shall be payable by the Secretary as provided in subsection (b). (b)

Payment of credit

The Secretary shall pay to such issuer the amount of the credit determined under subsection (a) on such date as the Secretary can reasonably determine such issuer is a small issuer for the calendar year. (c)

Small issuer

For purposes of this section— (1)

In general

The term small issuer means, with respect to any calendar year, any issuer if the aggregate face amount of all tax-exempt bonds (other than private activity bonds) issued by such issuer during such calendar year does not exceed $50,000,000. (2)

Certain refunding bonds not taken into account in determining small issuer status

There shall not be taken into account under paragraph (1) any bond issued to refund (other than to advance refund) any bond to the extent the amount of the refunding bond does not exceed the outstanding amount of the refunded bond.

. (b)

Clerical amendment

The table of sections for subchapter B of chapter 65 of such Code is amended by adding at the end the following new item: Sec. 6433. Small issuer credit. . (c)

Effective date

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