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Legislative review

Bill seeks clarity for parity on tax-exempt bonds

WASHINGTON - A bill has been introduced in the Senate that would treat tribal governments the same as state and local governments for purposes of issuing tax-exempt municipal bonds. At present, the Internal Revenue Service permits tribes to issue tax-exempt bonds only for ''essential government functions,'' a restriction other governments do not encounter. Tribes that issue tax-exempt bonds for purposes that fall in a gray area between essential government functions (which are untaxed) and profitable activity (ineligible for tax-free treatment) may find themselves the target of costly IRS audits, as has befallen several tribes in California, Florida and elsewhere.

Clarity in the tax code will bring parity to tribal tax-exempt bond issuances, according to the bill's advocates.

The ability to issue tax-exempt bonds without calling down the IRS is a significant attribute of other governments. Tribes that issue tax-exempt bonds, usually to finance new construction projects, can save on taxes they don't pay and on the cost of borrowing money through lower interest rates. Investors generally agree to take lower interest rates on the money they advance through purchasing tax-exempt bonds because they realize a higher after-tax return on investment. The arrangement has been indispensable to municipalities across the nation.

Tom Rodgers of Carlyle Consulting, a leading lobbyist on the issue, said it is time for tribal governments to be treated the same under the law.

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''We are going to aggressively pursue ... what we can get either this year or next,'' Rodgers said. ''The horizon for this is enactment now,'' he added, explaining that a five- or 10-year ''horizon'' for the bill's leading provision of parity for tribally issued, tax-exempt municipal bonds runs into revenue implications that could turn potential supporters against the bill. In essence, ''pay-go'' proponents in Congress are unlikely to back a bill over the long haul until it can prove its economic efficiency.

Instead, the bill's strategists are taking an approach modeled on the ''accelerated wage and depreciation'' law that Rodgers also shepherded - a brief initial ''horizon,'' followed by one- or two-year reauthorizations.

''We will search any and every tax vehicle to have this enacted into law,'' Rodgers said, referring to the separate bills the tax-exempt bonding legislation could be attached to as an amendment.

The bond parity issue faltered before Congress last year. This year it has been introduced in the Senate with co-sponsorship from both of the tax-writing committees of Congress: Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee; his vice chairman, Sen. Gordon Smith, R-Ore.; and in the House of Representatives, Reps. Devin Nunes, R-Calif., and Xavier Becerra, D-Calif., members of the House Ways and Means Committee.

Baucus has agreed to schedule a committee hearing on the bill.

''It'll give us time, in October, November and December, to move this bill and aggressively work it in the House and Senate,'' Rodgers said. ''We need time to work it in the Senate committee, on the Senate floor, and ultimately in conference [a conference committee convened to resolve differences between House and Senate versions of a bill] to maximize our chances of success, so that the presidential campaign and the end-of-the-year calendar doesn't overtake us.''