GM 12-096

New Federal Rules Reallocate Tribal Economic Development Bonds

On July 18, 2012, the Internal Revenue Service (IRS) and the Treasury Department announced through Notice 2012-48 that they will reallocate $1.8 billion in bond volume cap through Tribal Economic Development Bonds (TEDB). The original TEDB program, created in the American Recovery and Reinvestment Act of 2009, fell flat in Indian Country as programmatic restrictions and adverse credit markets left most of the bonds for tribal economic development projects unused. A copy of Notice 2012-48 may be found at:

Based in part on recommendations submitted by tribes and tribal organizations during last year’s comment process, the IRS has revamped the TEDB program to increase the likelihood that tribes will be able to successfully issue bonds to fund economic development projects.

We report on the major new aspects of the TEDB program:

1. Increased bond amount. The new rules dramatically increase the bond volume cap a tribe may use to fund projects. While the original TEDB program limited volume cap to $30 million, the new rules allow a tribe to apply for the greater of: i) $100 million; or ii) 20 percent of the available volume cap on the date of application, which could translate to approximately $360.5 million. Should the remaining total volume cap fall below $500 million, all applications will then be limited to $100 million in authority.

2. First-come, first-served. The new rules allow tribes to apply for, and receive authority, on a first-come, first-served methodology. The rules require that a tribe must first demonstrate that it is ready to issue bonds. The tribe will have 180 days to obtain financing and receive approvals or else forfeit their allocation to the IRS. Tribes that forfeit their allocation cannot apply for an extension but may reapply for a new allocation later.

3. Rigorous documentation. A tribe that applies for bond authority must provide the IRS with documentation from an independent third party that the proposed bonds are reasonably expected to be marketable within 180 days of allocation. A tribe may use a) a bond purchase commitment letter from an investor; b) a credit quality assessment; c) a credit enhancement commitment letter from a financial institution that will enable the TEDB to be investment grade credit quality; or d) a letter from an underwriter or financial advisor to the effect that the sale of the proposed bonds is likely to be successful in a timely manner.

4. Bond counsel. A tribe must also certify that it has engaged bond counsel to render an opinion to the effect that the proposed bonds will meet issuance requirements.

5. Assignments. Only federally-recognized tribes may apply for bond authority but they may assign their TEDB allocation to certain qualified issuers. A qualified issuer may be: a tribal Section 17 Corporation; a tribal subdivision that satisfies the requirements of Section 7871(d) for being treated as a political subdivision; or a “pool bond issuer” that is a tribe, tribal Section 17 Corporation, or a tribal subdivision.

6. New reporting requirements. The new rules require a tribe receiving bond authority to submit a Notice of Issuance to the IRS within 15 days of issuing TEDBs. This requirement enables the IRS to monitor available TEDB volume cap authority. The new rules also require a tribe to notify the IRS when the details of its TEDB financing differ from that proposed in its application. The IRS will not cancel a tribe’s allocation for “insubstantial” deviations that are disclosed to the IRS.

Please contact us if you have questions regarding Notice 2012-48 or would like our assistance regarding Tribal Economic Development Bonds.