[Congressional Record Volume 146, Number 66 (Wednesday, May 24, 2000)]
[Senate]
[Page S4390]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. JEFFORDS:
  S. 2626. A bill to amend the Internal Revenue Code of 1986 to improve 
access to tax-exempt debt for small non-profit health care and 
educational institutions; to the Committee on Finance.


 improving access to tax-exempt debt for small non-profit health care 
                     and educational institutions.

 Mr. JEFFORDS. Mr. President, today I am introducing 
legislation that will help small health and educational institutions 
more effectively finance the cost of essential services and new 
facility construction. By modifying the laws that restrict the 
deductibility of ``bank eligible'' bonds, the bill I am introducing 
today will increase access to tax-exempt financing for small non-profit 
organizations that need it most, like small local hospitals and small 
institutions of higher education.
  The Tax Reform Act of 1986 unintentionally discriminated against 
small educational, health care and other non-profit institutions that 
want to sell small amounts of tax-exempt debt to community banks. 
Before 1986, banks and financial institutions could deduct the interest 
incurred to carry a tax-exempt bond. This benefit enabled banks to 
purchase tax-exempt bonds at attractive rates. The 1986 tax act 
repealed bank deductibility, although an exception was retained for 
small issuers that issue bonds of $10 million or less each year.
  This exception was designed to preserve bank deductibility for small 
beneficiaries, but in practice is of assistance only to private 
placements issued by small local issuers. The small issuer exception 
has proven to be of little value in many States, like Vermont, where 
statewide health care and higher education bond issuing authorities 
typically issue many millions of dollars of debt each year. My bill 
will modify the small issuer exemption by granting the bond issuers the 
right to apply the small issuer exemption at the level of the ultimate 
beneficiary of the funding. Consequently, a small college or health 
care facility borrowing less than $10 million in tax-exempt debt in any 
one year could elect tax-exempt status for the debt, even if it is 
issued by a statewide issuing authority. This would make the debt more 
attractive to local banks, and could result in significant savings for 
the beneficiary institution over the life of the bond.
  My bill focuses the benefit of the small issuer exemption on smaller 
non-profits, without regard to whether the bond issuer is government 
entity issuing more than $10 in bonds per year. Small non-profits are 
important community institutions; they stand to benefit from greater 
access to tax-exempt debt. Wall Street and large banks may have little 
interest in small amounts of debt from small institutions, which can 
prove costly to administer. The bank across the street from a local 
college or health care clinic, however, may have greater confidence and 
insight in the institution. My bill would allow those banks to carry 
tax-exempt debt at attractive rates and maintain commitments to the 
people and institutions in their local communities.
  I urge my colleagues to support this bill.
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