WASHINGTON – Rep. Dave Camp has introduced a bill that would broaden the ability of tribes to issue tax-exempt bonds. And, in an acknowledgement of sovereignty, the Michigan Republican’s bill would give tribal governments equal status with states and the federal government on being exempt from securities registration.
Scott Clements, managing member of financial advisor Clements Partners Inc., Portland, Ore., said the expanded tax-exempt authority would allow tribes to issue bonds to pay for “private activity” facilities like golf courses and convention centers.
This would be an expansion from current authority to use tax-exempts to finance “essential governmental services,” he said, based on his reading of an account in the trade newspaper The Bond Buyer Online.
But, Clements cautioned, the bill limits tribal authority to reservation land, unlike a similar bill introduced by Rep. Camp in 2001.
Camp’s new bill, H.R. 1421, has been referred to the House Committee on Ways and Means.
Clements said the exemption from securities registration is a crucial element for tribes. “Without an exemption from registration, permitting bond sales to the public, tribal tax-exempt bonds are less marketable and less liquid. This directly translates to tribes unnecessarily paying higher interest rates and higher fees.”
Clements’ firm is currently structuring a bond for a Nevada tribe that wants to finance a health care facility.
He noted that tribes’ inability to get investment grade ratings on their bonds has meant they have had to pay more for money, making other options, like bank syndication loans, more beneficial to them.
He said he knew of half a dozen Indian bonds in the last two years that have received unrated, or “junk bond” status, meaning tribes had to pay substantially more in interest charges than they would have had to on rated issues.
H.R. 1421, the “Tribal Government Tax-Exempt Bond Fairness Act of 2003,” acknowledges tribal sovereignty directly in its Section 2 by saying “The United States Constitution, United States Federal court decisions, and United States statutes recognize that Indian tribes are governments, retaining sovereign authority over their lands.”
It specifies allowing tax-exempt authority if the money raised “is part of an issue 95 percent or more of the net proceeds of which are to be used to finance any facility located on an Indian reservation, or such obligation is part of an issue substantially all of the proceeds of which are to be used in the exercise of any essential governmental function.”
The Act specifically excludes financing gaming facilities through tax-exempt bonds.