[Congressional Record Volume 149, Number 17 (Thursday, January 30, 2003)]
[Senate]
[Pages S1834-S1835]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SMITH (for himself, Mr. Corzine, Mr. Schumer, and Ms. 
        Snowe):
  S. 271. A bill to amend the Internal Revenue Code of 1986 to allow an 
additional advance refunding of bonds originally issued to finance 
governmental facilities used for essential governmental functions; to 
the Committee on Finance.
  Mr. SMITH. Mr. President, I rise today to introduce, with my friend 
and colleague, Senator Corzine, the ``Municipal Debt Refinancing Act of 
2003.'' We are pleased to be joined by Senator Schumer and Senator 
Snowe in this bipartisan effort. This important legislation will allow 
States and localities access to low cost capital during this current 
period of fiscal crisis, allowing cities to take advantage of low 
interest

[[Page S1835]]

rates by permitting an additional advance refunding of most tax-exempt 
governmental bonds. This bill provides Oregon cities like Portland, 
Eugene or Salem, all of which issue municipal bonds, with an increased 
ability to ease some of the budgetary constraints they currently face.
  When interest rates fall, homeowners often seek to refinance their 
mortgages to reduce interest costs. Similarly, State and local 
governments take advantage of low interest rates by refinancing 
outstanding high-cost debt. However, unlike homeowners who can usually 
refinance at any time, municipalities can only redeem existing debt on 
specific dates, known as call dates. If an issuer would benefit from a 
refunding transaction but the existing bonds are not currently eligible 
to be called, the issuer can still refinance by executing an ``advance 
refunding.'' In this case, the State or local government issues advance 
refunding bonds and the proceeds of the new bonds are held in reserve 
to pay the interest and principal on the old bonds until they become 
callable.
  The Federal tax code prohibits tax-exempt bond issuers from advance 
refunding most bonds more than once. Therefore, if a bond has been 
advance refunded once and interest rates fall to the point where a 
State or local government would benefit from an additional advance 
refunding, the issuer is precluded from taking advantage of the lower 
rates.
  Under current law, bonds originally issued after 1985 may only be 
advance refunded once. Bonds issued before 1986 may be advance refunded 
twice. Second, most private activity bonds may not be advance refunded. 
In the past, Congress has considered amending Section 149 of the Code 
to allow an additional advance refunding of bonds originally issued to 
finance governmental facilities used for ``essential government 
functions''.
  ``Essential government functions,'' as currently defined in tax 
regulations, include facilities ``owned by a governmental person and 
that are available for use by the general public.'' In practice, such 
an approach would likely encompass most bonds issued to finance 
facilities owned by State or local governments. One way to limit the 
revenue cost of this proposal would be to impose a sunset on the 
expanded advance refunding authority. This would also encourage 
municipal bond issuers to take advantage of the additional advance 
refunding more immediately, maximizing the proposal's potential 
economic simulative effect.
  State and local access to capital at the lowest possible cost is 
critical at this time and vital to Oregon's long-term economic growth. 
Further, tax-exempt bonds fund a wide variety of capital infrastructure 
projects such as schools, roads and highways, bridges, water and sewer 
systems, airports, and parks, among many others. As Oregon faces a 
fiscal crisis on such a large scale, this advance refunding is an 
innovative way the federal government can help cities and towns provide 
vital infrastructure and services for Oregonians. I ask all my 
colleagues to join Senator Corzine and me in sponsoring this important 
legislation that will help municipalities across this Nation.
  I ask unanimous consent to have this legislation printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 271

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Municipal Debt Refinancing 
     Act''.

     SEC. 2. ADDITIONAL ADVANCE REFUNDINGS OF CERTAIN GOVERNMENTAL 
                   BONDS.

       (a) In General.--Section 149(d)(3)(A)(i) of the Internal 
     Revenue Code of 1986 (relating to advance refundings of other 
     bonds) is amended--
       (1) by striking ``or'' at the end of subclause (I),
       (2) by adding ``or'' at the end of subclause (II), and
       (3) by inserting after subclause (II) the following:

       ``(III) the 2nd advance refunding of the original bond if 
     the original bond was issued after 1985 or the 3rd advance 
     refunding of the original bond if the original bond was 
     issued before 1986, if, in either case, the refunding bond is 
     issued before the date which is 2 years after the date of the 
     enactment of this subclause and the original bond was issued 
     as part of an issue 90 percent or more of the net proceeds of 
     which were used to finance governmental facilities used for 1 
     or more essential governmental functions (within the meaning 
     of section 141(c)(2)),''.

       (b) Effective Date.--The amendments made by this section 
     shall apply to refunding bonds issued on or after the date of 
     the enactment of this Act.
                                 ______