This is a follow up on our earlier alert regarding the opportunity provided in the Economic Stimulus legislation for Indian tribal governments to finance reservation projects on a tax-favored basis using “tribal economic development bonds.” These are tax-exempt bonds that tribes may issue for the same purposes as states and local governments, without regard to two limitations that apply to other tribal bonds: the “essential governmental function” test and the prohibition against the issuance of “private activity bonds.”
Last evening, the IRS posted a notice on its website that it is seeking public comment from tribes and others regarding how best to allocate the national volume cap of $2,000,000,000 that applies to these bonds. The IRS has set a deadline for this input of March 30, 2009.
In the notice issued yesterday, the IRS stated that there are two potential methods for allocating bond volume cap: (1) a formula-based method, and (2) a project-based method. Under the formula-based method, the IRS would allocate volume cap based on objective formula criteria, such as population, poverty or unemployment levels, other measures of economic need, or other criteria, without considering specific projects. Under the project-based method, applications would be filed with respect to specific projects and the IRS would allocate volume cap among projects using specified criteria, such as a pro rata method in proportion to bond amounts sought, a first-come first-served method, a subjective evaluation method, or other specified method. Applications may require detailed information regarding the project, including project size, other sources of financing, credit information, expected dates of bond sales, and expected time for project completion. (We note that, while tribal economic development bonds could be issued to refinance taxable debt outstanding on projects already completed, if the IRS intends to focus on economic stimulation, refinancings might be disfavored.)
Once an allocation method is determined, the Department of the Treasury and the IRS will publish a notice regarding the method that either allocates the volume cap based on a selected formula or that solicits applications for specific projects, with a deadline for submitting applications and with further information regarding criteria to be considered in allocating volume cap to specific projects.
If you would like our assistance in formulating input for the IRS, please contact any of the Dorsey lawyers on this page.