The American Recovery and Reinvestment Act of 2009 (the “Act”) features numerous appropriations, financing provisions, and tax law changes intended to provide non-profit organizations with increased financial assistance during 2009 and 2010. Among the more dramatic changes made by the Act are several tax law amendments designed to encourage investment in tax-exempt bonds.
First, and perhaps most significantly, the Act increases the annual limit for small issuers of “bank-qualified” tax-exempt obligations from $10M to $30M. Further, the annual limit is no longer applied at the conduit issuer level. Instead, each non-profit borrower is treated as its own issuer for bank-qualified purposes. Because of this change, the increased capacity to issue bank-qualified bonds is available to each individual non-profit organization and is not aggregated with other bonds issued by the conduit issuer. Also, the bank-qualified capacity is available for both new money and refunding purposes. With this change, larger projects (or larger refundings) undertaken by a non-profit now can be financed with a bank-held, bank-qualified deal.
Second, the Act allows banks a new, limited deduction of interest allocable to investments in tax-exempt bonds issued before the end of 2010. This deduction was previously available to corporations, but was not extended to banks until now.
Finally, the Act changes the law to exclude interest on tax-exempt debt issued by non-profits from adjusted current earnings for purposes of the alternative minimum tax on corporations. This change applies to debt issued to finance new projects or to refund certain outstanding obligations.
For colleges, universities, hospitals, continuing care retirement communities, and other non-profit borrowers seeking to finance new projects or to refinance existing debt, these changes should make more credit available at lower interest rates. In order to take advantage of the changes, however, bonds must be issued in 2009 or 2010.