John Cross, associate tax legislative counsel with the U.S. Department of the Treasury’s Office of Tax Policy, attended a tribal investors summit in New York City on Tuesday to explain the new guidelines and clarify application requirements for allocation of the $1.8 billion remaining in Tribal Economic Development Bonds (TEDB).
Roughly 150 people including tribal representatives, lawyers, leaders of American Indian-owned companies and organizations, and investors from major banks and corporations attended the conference, hosted by the Native American Finance Officers Association (NAFOA).
Cross explained the Treasury’s two-year $2 billion Indian tax-exempt pilot, established under the American Recovery and Reinvestment Act of 2009, was almost completely unused for a variety of reasons: “credit constraints, the [capital] market, issues with allocation,” among others. “Only about $200 million of the $2 billion was actually issued.”
There is no public list of the 10 tribes that received and used allocations, Dante Desiderio, NAFOA executive director, told Indian Country Today Media Network.
In a notice released Monday, the Treasury announced the bond authority is available again to tribes under more flexible terms. Previously, tribal governments could only issue bonds for government buildings, requiring tribal bonds to pass an “essential government test.”
The new guidelines provide tribes with the authority to issue tax-exempt debt for a broader scope of activities to spur job creation and promote economic growth in Indian country. The ability to issue tax-exempt debt—similar to that available to states and local governments—lowers tribes’ borrowing costs, making it easier to engage in new economic development projects.
At the NAFOA conference, Cross addressed the main themes of the joint notice from the Treasury and NAFOA, starting with the change in the cap on allocations.
The original volume cap was $30 million for each individual tribe. “The new cap is 20 percent of the remaining balance,” Cross said, “to allow for some big projects and economies of scale.” The current maximum allocation is about $360 million. “When the authority reaches $500 million, the percentage no longer applies. The cap is reduced to $100 million.”
According to Cross, the most notable change to the Treasury’s recommendations concerns an emphasis on having the project ready to develop with a plan for financing before applying, “because a tribe only has 180 days to close,” meaning issue the proposed bonds after receiving an allocation. If a tribe does not meet its deadline, it forfeits its allocation.
“Receiving an extension is very unlikely,” stressed Randy DelFranco, a partner at Holland & Knight, who participated in the NAFOA panel discussion with Cross and Jeff Carey, managing director of the Native American Banking and Financial Services team at Bank of America Merrill Lynch.
Still, Cross noted that “the authority is allocated on a first come, first serve basis.” Asked when tribes should begin applying for allocations, Cross said, “yesterday.”
Carey added: The Treasury Department “set up a reasonable process, and we hope to be able to help tribes get allocations in short order.”
TED bonds can be used for a number of projects: “entertainment venues, energy plants, hotels…,” DelFranco suggested. But no portion of the proceeds of the proposed bonds may be used for gaming purposes or to finance any portion of a facility that houses or conducts Class II or Class III gaming.
DelFranco also clarified a potential misunderstanding regarding the use of the bonds: “While TEDs can be used for refinancing, TEDs are not refundable.”
Tribes have the opportunity to apply for TED bonds to cover multiple projects with the option to submit a single application for all proposed projects, or separate applications for separate projects.
Tribes can additionally apply for financing for joint projects. While tribes can partner with other tribes or entities, joint ownership with a non-tribal entity will result in being subject to the private activity bond restrictions on tax-exempt bonds.
All projects must be located entirely within one or more of the reservations of the Indian tribal governments receiving an allocation of volume cap. Cross could not answer whether or not this applies to tribal trust lands, Alaska tribes or landless tribes. “The Treasury may recommend to expand the flexibility of the allocation to include projects with a substantial connection to the reservation or to servicing folks on the reservation,” stated Cross, implying more information may be released down the road.