Residents who depend on public services have a stake in how state and local governments document borrowing. In this December 10, 2016 weekend retrospective, the relevant action came the previous day: the IRS finalized the definition of issue price for arbitrage restrictions on tax-exempt and other tax-advantaged bonds. That is a rule about a tax calculation, not an announcement that a city's financing costs had fallen. [2016-29486][2015-15411]
For bonds issued for money, the general rule used the first price at which a substantial amount was sold to the public. Ten percent counted as substantial. Bonds without the same credit and payment terms required separate determinations, and underwriters and their related parties were excluded from the definition of the public. The measurement therefore had boundaries beyond simply finding any early transaction. [2016-29486][2015-15411]
The 2015 proposal had considered an alternative based on the initial offering price, with a restriction on higher-priced orders before issuance and a market-change exception. The final optional method instead used a written ceiling ending at the earlier of the fifth business day's close after sale or qualifying substantial sales. That change matters to how the chosen price is supported; it does not itself prove better borrowing terms. [2016-29486][2015-15411]
The rule was effective December 9, but its new definition applied to bonds sold on or after June 7, 2017. These documents belong to one IRS rulemaking chain. For public accountability, the useful question is which permitted method an issuer selected and documented. Neither a clearer definition nor a selected method establishes that residents received savings, better services or a particular return on public spending. [2016-29486][2015-15411]
Source documents
- Issue Price Definition for Tax-Exempt Bondshttps://www.govinfo.gov/content/pkg/FR-2016-12-09/html/2016-29486.htm
- Issue Price Definition for Tax-Exempt Bondshttps://www.govinfo.gov/content/pkg/FR-2015-06-24/html/2015-15411.htm