[Federal Register Volume 61, Number 84 (Tuesday, April 30, 1996)]
[Proposed Rules]
[Pages 19002-19003]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10726]



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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 344

[Department of the Treasury Circular, Public Debt Series No. 3-72]


Regulations Governing United States Treasury Certificates of 
Indebtedness, Treasury Notes, and Treasury Bonds--State and Local 
Government Series

AGENCY: Bureau of the Public Debt, Fiscal Service, Department of the 
Treasury.

ACTION: Advance Notice of Proposed Rulemaking.

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SUMMARY: The Department of the Treasury is issuing this Advance Notice 
of Proposed Rulemaking to advise market participants in State and Local 
Government Series (SLGS) securities transactions of its intention to 
issue regulations designed to make the SLGS securities program more 
attractive and flexible to investors while still achieving policy and 
cost objectives of the Department. Many of the changes under 
consideration have been requested by market participants and state and 
local governments. We invite comments, advice and recommendations from 
interested parties regarding the changes under consideration as well as 
any additional changes not specifically covered by this notice.

DATES: Comments must be received on or before May 30, 1996.

ADDRESSES: Copies of this Advance Notice of Proposed Rulemaking have 
been made available for downloading from the Bureau of the Public Debt 
home page at the following address: http://www.ustreas.gov/treasury/
bureaus/pubdebt/pubdebt.hmtl Comments should be sent to: Division of 
Special Investments, Bureau of the Public Debt, Department of the 
Treasury, 200 3rd St., P.O. Box 396, Parkersburg, WV 26101-0396.

[[Page 19003]]

Comments received will be available for public inspection and copying 
at the Division of Special Investments and at the Treasury Department 
Library, FOIA Collection, Room 5030, Main Treasury Building, 1500 
Pennsylvania Avenue NW, Washington, D.C. 20220. Persons wishing to 
visit the library should call 202-622-0990 for an appointment. Comments 
may also be sent through the Internet to Fred Pyatt, Director, or 
Howard Stevens, Supervisory Program Analyst, Division of Special 
Investments at [email protected] or [email protected]. When 
sending comments by Internet, please provide your full name and mailing 
address.

FOR FURTHER INFORMATION CONTACT: Fred Pyatt, Director, or Howard 
Stevens, Supervisory Program Analyst, Division of Special Investments, 
at 304-480-7752.

SUPPLEMENTARY INFORMATION:

I. Background

    The Department of the Treasury, Bureau of the Public Debt, desires 
to make the SLGS securities program more attractive and flexible for 
State and local government issuers of debt obligations that are subject 
to the arbitrage and rebate rules of the Internal Revenue Code. It is 
the Department's intent to do so in a manner consistent with tax policy 
objectives and in a manner that is cost effective.
    In recent years, market participants have advised the Department 
that aspects of the existing SLGS securities regulations impose burdens 
that are not needed or cost-effective. Changes in the Internal Revenue 
Code since the inception of the SLGS securities program, specifically 
changes in the arbitrage and rebate restrictions under Section 148, 
make it possible to eliminate certain requirements that are now 
contained in the SLGS securities regulations. Section 148 restricts the 
use of proceeds of tax-exempt State and local bonds to acquire higher 
yielding investments. For example, Section 148(a) provides generally 
that interest on a State or local bond is tax-exempt only if the issuer 
invests bond proceeds at a yield that is not materially higher than the 
yield on the bond issue. Section 148(f) provides that interest on a 
State or local bond is tax-exempt only if the issuer rebates to the 
Federal government certain arbitrage earnings derived from investing 
gross proceeds at a yield exceeding the yield on the bond issue.

II. Set Forth Below Are Possible Changes in the SLGS Program That 
the Department is Studying

    1. Eliminate the ``all or nothing'' certification which requires 
all yield restricted investments be invested either all in SLGS 
securities or all in open market Treasury securities.
    2. Allow subscriptions for time deposit and special zero interest 
SLGS securities in increments of less than $100 above the $1,000 
minimum investment and permit partial redemptions in multiples of less 
than $100.
    3. Reduce the minimum maturity for zero interest time deposit and 
special zero interest certificates of indebtedness.
    4. Reduce the time between the date of subscription and the date of 
issue for time deposit and special zero interest SLGS securities.
    5. Make SLGS securities pricing more consistent with open market 
Treasury securities pricing by reducing the 1/8 of 1% (12.5 basis 
points) differential that now exists between SLGS securities prices and 
the then current estimated Treasury borrowing rate for a security of 
comparable maturity.
    6. Permit SLGS securities to be purchased with funds subject to 
rebate as well as yield restriction by removing from the current SLGS 
securities regulations certifications which limit or prohibit 
investment. Certain of the limitations would be incorporated into the 
Internal Revenue Service regulations.
    7. Revise the demand deposit program. Revisions being considered 
include adjusting the rate formula and eliminating certifications that 
are duplicative of current tax regulations or could be better 
administered through the tax regulations.
    8. Change the formula for determining the redemption value of SLGS 
securities to one where the remaining interest and principal payments 
are discounted by the Treasury borrowing rate for the remaining term to 
maturity of the security being redeemed. This would result in a premium 
in cases where the Treasury borrowing rate is lower than the stated 
interest rate of the SLGS security.
    9. Zero interest time deposit SLGS securities could be redeemed 
early at par.
    10. Permit the purchase of SLGS securities with the proceeds of 
previously redeemed SLGS securities or open market Treasury securities.
    These proposed changes to the SLGS securities program could be 
omitted, modified or additions made in light of any comments received 
or as a result of any internal Department decisions.
    This advance notice of proposed rulemaking is being issued to 
secure the benefit of public comment. After receipt and consideration 
of responses to this advance notice of proposed rulemaking, the 
Department may issue a notice of proposed rulemaking or it may only 
issue a final rule amending 31 CFR Part 344. However, because any 
proposed or final rule will relate to matters of public contract and 
procedures for United States securities, as well as the borrowing power 
and fiscal authority of the United States, the notice, public comment 
and delayed effective date provisions of the Administrative Procedure 
Act are inapplicable pursuant to 5 U.S.C. 553(a)(2).

List of Subjects in 31 CFR Part 344

    Bonds, Government securities, Securities.

    Authority: 31 U.S.C. 3102, et seq., Pub. L. 99-514, 100 Stat. 
2654, Sec. 1301(d).

    Dated: April 25, 1996.
Gerald Murphy,
Fiscal Assistant Secretary.
[FR Doc. 96-10726 Filed 4-26-96; 10:23 am]
BILLING CODE 4810-39-W