March 6, 2013 - On Friday, March 1, 2013, the sequestration provisions of the Budget Control Act of 2011 (“Sequestration”) went into effect. As a result, according to the Internal Revenue Service, federal subsidy payments relating to Direct-Pay Tax Credit Bonds will be reduced by 8.7 percent of the amount that would otherwise have been paid to the issuer.
Direct-Pay Tax Credit Bonds are taxable bonds for which the federal government makes a direct payment equal to a percentage of the interest due, and include:
Issuers of Direct-Pay Tax Credit Bonds may want to review their bond documents with their bond counsel and/or financial advisor to understand the potential effect of Sequestration on their Direct-Pay Tax Credit Bonds, and may wish to consider the following actions:
In addition, issuers who are preparing to sell bonds should consult with bond counsel and/or disclosure counsel about whether Sequestration will have a material effect on the issuer’s financial picture in general, including anticipated receipt of significant federal grant funds, payments-in-lieu-of-taxes, or other potential impacts.
For further information, click on the links above or contact any member of our Municipal Government and Public Finance practice groups.