[Congressional Record Volume 142, Number 8 (Tuesday, January 23, 1996)]
[Extensions of Remarks]
[Page E53]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




A BILL TO PROVIDE SIMILAR TAX TREATMENT FOR SECTION 501(C)(3) BONDS AS 
                   THAT PROVIDED TO GOVERNMENT BONDS

                                 ______


                           HON. AMO HOUGHTON

                              of new york

                    in the house of representatives

                       Tuesday, January 23, 1996

  Mr. HOUGHTON. Mr. Speaker, I am pleased to join my colleague from 
California, Mr. Matsui, as well as a number of other colleagues, in 
introducing the Nonprofit Organizations Tax-Exempt Bond Reform Act of 
1996. This is an important piece of bipartisan legislation that would 
help solve a problem that has been growing since the law was changed in 
1986. Basically, the problem is one where a number of section 501(c)(3) 
organizations are now at the $150 million limit on outstanding bonds. 
The limit was established by the 1986 Tax Reform Act. The proposed 
legislation would remove this cap and allow bonds issued by 501(c)(3) 
organizations to be treated similarly to those issued to finance direct 
State or local government activities--as they were permitted to do 
before the 1986 change. Similar corrective legislation has been 
considered and/or passed by prior Congresses, although not to the point 
of being enacted into law.
  The concept of an exempt person, that existed under the Code bond 
provisions before 1986, would be reenacted. An exempt person would be 
defined as first, a State or local governmental unit or second, a 
section 501(c)(3) organization, when carrying out its exempt activities 
under section 501(a). Thus, bonds for section 501(c)(3) organizations 
would no longer be classified as private activity bonds. Financing for 
unrelated business activities of such organizations would continue to 
be treated as a private business use for which tax-exempt financing is 
not authorized.
  As exempt persons, section 501(c)(3) organizations would be subject 
to the same limits as State and local governments on using their bond 
proceeds to finance private business activities or to make private 
loans. Additional restrictions on the bonds issued by such 
organizations would be repealed. The bill would make no amendments, 
other than technical conforming amendments, to the present-law 
arbitrage restrictions, the alternative minimum tax-exempt bond 
preference, or the provisions generally disallowing interest paid by 
banks and other financial institutions on amounts used to acquire or 
carry tax-exempt bonds.
  The principal beneficiaries of the bill would be private, nonprofit 
colleges and universities. These institutions provide substantially 
identical educational services to those provided by governmental higher 
education institutions. In order to have a consistent tax policy of 
providing like treatment for similarly situated persons, the tax-exempt 
bond rules should provide comparable access to tax-exempt financing for 
these entities.
  The main provision in the proposed legislation is to remove the $150 
million per-institution limit on outstanding nonhospital qualified 
501(c)(3) tax-exempt bonds. This provision was intended as a limit on 
tax arbitraging of college and university endowments. Other present-law 
tax-exempt bond restrictions for example, the arbitrage rebate 
requirement and public approval, bond maturity, hedge bond, and advance 
refunding restrictions, adequately address this concern. In addition, 
the concern that private colleges and universities engage in tax 
arbitraging of their endowments reflects a misunderstanding of the 
restrictions governing endowments. Most State laws prohibit depletion 
of endowment corpus. Further, approximately 65 percent of endowment 
funds nationally is subject to donor-imposed restrictions on the uses 
for which even the income may be used.
  Finally, the other beneficiary would be nonprofit health care 
providers who are also subject to the $150 million cap. A growing 
number of health care providers are delivering medical services in a 
cost-effective manner outside of the hospital setting. Yet, providers 
like community health clinics, skilled nursing facilities, and 
ambulatory care facilities are limited by the $150 million cap per 
institution in outstanding tax-exempt bonds. Also, as alternative 
health care facilities and hospitals form integrated health care 
delivery systems, the cap hinders the consolidation of these entities. 
The cap actually acts as a barrier to these mergers, because after a 
merger there would be a single $150 million limit.
  The proposed legislation generally would apply to bonds issued after 
the date of enactment.
  We welcome the support of our colleagues in cosponsoring this 
important legislation.

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