[Congressional Record Volume 152, Number 91 (Thursday, July 13, 2006)]
[Senate]
[Page S7517]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SANTORUM:
  S. 3657. A bill to amend the Internal Revenue Code of 1986 to allow 
bonds guaranteed by the Federal Home Loan Banks to be treated as tax-
exempt bonds; to the Committee on Finance.
  Mr. SANTORUM. Mr. President, as a member of the Senate, I have 
devoted much of my time at looking for innovative ways to develop local 
communities in which our families can prosper. It is in that spirit 
that I am introducing legislation today that will help local 
governments across the country meet economic development needs in a 
manner that partners with the private sector and saves local taxpayers 
money. Specifically, I rise today to introduce legislation that would 
allow community bank members of Federal Home Loan Banks to provide 
credit support to tax-exempt municipal development bonds, including 
letters of credit, LOCs.
  Under current law, State and local governments are able to issue tax-
exempt bonds to help fund community and economic projects. To ensure 
that bond investors will be paid in full, Federal Home Loan Banks 
provide a LOC. Unfortunately, the Internal Revenue Service, IRS, has 
classified Federal Home Loan Bank LOCs as a Federal guarantee, a 
decision that triggers the loss of a bond's tax-exempt status. By 
allowing community banks to partner with the Federal Home Loan Banks to 
offer credit support on municipal tax-exempt bonds, local communities 
will be able to reduce the cost to local taxpayers for bonds issued for 
such projects as wastewater treatment facilities, fire stations, 
medical clinics, school buses, long-term care facilities, and 
infrastructure improvements.
  Through their community bank owners, Federal Home Loan Banks have 
offered letters of credit for over 10 years. They can provide letters 
of credit for taxable municipal bonds and tax-exempt housing bonds; 
however, due to a quirk in the law, they cannot do so for tax-exempt 
economic development bonds. My legislation would fix this inconsistency 
in the Tax Code.
  Congress has already determined that credit support issued by other 
government-sponsored enterprises, GSEs, can support nonhousing 
municipal bond issues without losing tax-exempt treatment. The other 
GSEs mentioned in the code--Fannie Mae, Freddie Mac, Ginnie Mae, the 
Farm Credit System, and the Tennessee Valley Administration--are 
privately owned corporations--Federal Home Loan Banks--whose 
obligations are also not guaranteed by the U.S. Government. Therefore, 
granting the Federal Home Loan Bank letters of credit the same 
recognition is simply an equitable proposition.
  This legislation will have a positive economic impact for local 
communities. Allowing Federal Home Loan Banks to provide credit support 
for tax-exempt municipal bonds will increase access to capital for 
municipalities which will spur economic growth and stimulate job 
creation. Municipal bonds raise money for public purposes to build and 
strengthen their communities. This is why groups like the Pennsylvania 
School Board Association supports this provision. They agree that this 
bill can ``potentially help school districts lower the costs for 
expensive school projects, such as bus purchasing and building 
construction.'' Hospitals can gain the resources necessary to utilize 
the most up-to-date technology to provide our children with the best 
health care possible. Municipal bonds help local officials finance 
renovations of sewer systems, roads and highways to improve the quality 
of life for families.
  This legislation is important because it gives local officials an 
additional option as they strive to do more for their communities with 
tighter budget constraints. This bill is supported by the National 
League of Cities, the U.S. Conference of Mayors, the Independent 
Community Bankers of America, the Council of Federal Home Loan Banks, 
the National Association of Homebuilders, and the American Bankers 
Association, the National Association of Higher Educational Facilities 
Authorities, and the National Council of Health Facilities Finance 
Authorities. In my state of Pennsylvania, this effort is supported by 
the Pennsylvania Housing Finance Agency, the Pennsylvania Association 
of Community Bankers, the Pennsylvania Bankers Association, the 
Pennsylvania School Boards Association, and the Pennsylvania League of 
Municipalities. These groups have a strong reputation of supporting 
economic development on the state and local level.
  This bill will simply provide consistency in the Tax Code, but more 
importantly, the benefits to our families and communities will be 
substantial.
  Congress must continue to look for ways to spur economic development 
for America's communities. This bill will help do just that, and I urge 
my colleagues to support this legislation.
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