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INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7090
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`Q4soRr� To the Mayor and Members of the City Council February 11, 1986
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Subject: FEDERAL TAX REFORM LEGISLATION
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Scheduled for Pre-Council on February 11 is a presentation of the
major provisions and local impacts of the federal tax reform legisla-
tion as passed by the House of Representatives, H.B. 3838, and now
under consideration in the U. S . Senate .
The Bill seeks to do three things : (a) to limit the quantity of
tax-exempt bonds issued by states and local governments , (b) to sub-
stantially narrow the market for those bonds that are issued , and
(c) to place other restrictions on state and local government financ-
ing.
Major provisions of the bill include the following:
(1) Certain capital projects , such as convention centers ,
parking facilities (except at airports) and sports
facilities would no longer be eligible for tax-exempt
financing.
(2) Financing for certain programs and capital projects
would be jeopardized because they will have to compete
for an inadequate "state volume cap" . These include
an alarming number of items heretofore considered to
be public purpose , including housing and dater and sew-
age facilities .
(3) Changes in the tax treatment of municipal bond interest
for major classes of bond holders will increase the cost
of debt to the City.
(4) Interest earned on certain debt service funds in excess
of debt cost will result in the City paying interest
earned on property taxes to the Federal treasury .
(5) Some interest earned from bond proceeds in the City ' s
construction fund will be paid to the Federal treasury.
(6) Five percent (5%) of all bond proceeds must be spent
in 30 days or the bonds become retroactively taxable
to the date of issue .
(7) The effective date of January 1 , 1986 , has made municipal
bond sales difficult and increased the costs of those
issued .
It is estimated that the cost of debt for cities will increase from .3
percentage points to 2 percentage points , depending upon the type of
project being financed. The higher figure , of course , would represent
the additional cost on projects that would have to be financed at tax-
able rates . For example , a 2% additional interest rate on the City' s
ISSUED BY THE CITY: MANAGER FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7090-Pa 2
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ulmRxo�'�- To the Mayor and Members of the City Council F e b r u a ry 11 , 19 8 6
Subject: FEDERAL TAX REFORM LEGISLATION
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$43, 125, 000 Water and Sewer System Revenue Bonds dated February 15 ,
1985, would amount to an additional $ 12 ,600, 000.
Attached hereto is a more detailed analysis of the Bill which has
been prepared by our Financial Advisor, First Southwest Company.
Doug as Harman
City Manager
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Attachment
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS ---�