Baucus Bill to Back Taxable Tax-credit Environmental Bonds

The publication Bond Buyer reported on May 10 that Senator Max Baucus (D-MT) is preparing legislation embodying the Clinton Administration's proposal to use taxable tax-credit bonds to finance environmental projects.

Baucus is working to build bipartisan support for the measure before introducing the bill by proposing to expand the board that would review and award bonding authority, said congressional and market sources.

Because the bill proposes changes to the Internal Revenue Code, a source expects it to proceed through the Senate Finance Committee, where Baucus is the second highest-ranking Democrat. (Baucus is the ranking minority member on the Senate Environmental and Public Works Committee.)

The Administration proposed its Better America Bond program as part of President Clinton's fiscal 2000 budget. It would authorize the issuance of some U.S.$9.5 billion in taxable bonds over five years.

The Administration's plan and the bill Baucus is writing cite identical uses for tax-credit bond proceeds. Proceeds, in part, could be used for land remediation, for the acquisition of easements on private property to prevent commercial development, and for Brownfields redevelopment.

As do the Administration's proposed tax-credit bonds for school construction and modernization, the Better America Bonds would pay investors a federal tax credit rather than traditional interest.

Supporters of tax-credit bonds say they offer issuers a more substantial subsidy than traditional tax-exempt bonds.

The legislation Baucus is developing proposes an award board with approximately 12 members, including about seven federal officials and a total of five with experience in state and local government, the environment, planning, and finance, a congressional source said.

Baucus's proposal would include guidelines for making the annual awards of bonding authority. The guidelines would encourage awards for projects from a range of regions, issuers of varying sizes, and a variety of project types, the source said.

According to both the Administration's plan and the bill Baucus is developing, Better America Bond issuers would be required to use at least 95% of bond proceeds for the project, with the remainder available for issuance and other costs.