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GFOA Publishes Best Practices on Issuing Taxable Debt

The Government Finance Officers Association’s (GFOA) Executive Board approved several best practices and advisories this month, including GFOA’s Best Practice on Issuing Taxable Debt.

A link to the best practices is here

The GFOA Taxable Debt Best Practice cites the globalization of the capital markets, the elimination of tax-exempt advance refunding in the Tax Cuts and Jobs Act of 2017, and tax-exempt financing tax rules, including restrictions on private business use of bond-financed facilities as having led to increased taxable municipal debt issuances.

The Best Practices contains good, common-sense advice, including:

  • Evaluate applicable federal, state, and local debt issuance legal requirements, particularly, if applicable, “lending of credit” restrictions if private entities are expected to use the bond-financed facility;
  • Know the market for taxable debt, including types of investors, structural features, and size requirements needed to attract investor interest;
  • Consider structural features that may provide long-term benefits, such as hyper-amortization and early call provisions;
  • And, if refunding an outstanding bond issuance, weigh the advantages and potential costs of a taxable advance refunding if in a low-interest-rate environment versus waiting to currently refund the issue on a tax-exempt basis, including the uncertainty of the future interest rate environment.

The GFOA Taxable Debt Best Practice is a quick read and a good basic framework for issuers to start from when considering issuing taxable debt. It bears noting that many municipal bond professionals are cautiously optimistic that a Federal infrastructure bill will include various bond-friendly provisions, including reinstating tax-exempt advance refundings. If such a provision were enacted, issuers would not only be able to advance refund bonds in a low interest rate environment, but depending on the facts, might once again be able to do so on a tax-exempt basis.

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