The following provides an overview of port general obligation, revenue, special facility, local improvement district and industrial development bonds, summarizing basic characteristics of each financing type, highlighting certain limitations that apply to facilities financed on a tax-exempt basis, and introducing securities law considerations applicable to port bond issues.

General Obligation Bonds

Overview. Washington ports issue general obligation bonds paid from property taxes and backed by the full faith and credit of the port, subject to constitutional and statutory limitations on indebtedness.[1] General obligation bonds are issued in one of two forms: “councilmanic” limited tax general obligation bonds (“LTGO” bonds) and voter-approved unlimited tax general obligation bonds (“UTGO” bonds).

LTGO bonds. A Washington port does not need voter approval to issue LTGO bonds within the port’s nonvoted debt capacity.

• Payment and Security. LTGO bonds are paid from nonvoted regular property taxes and other legally available funds. Ports may impose a levy of up to $0.45 per $1,000 of assessed valuation for general port purposes and, in addition, may levy in excess of the $0.45 per $1,000 limit to pay principal of and interest on general obligation bonds. The total dollar amount of the tax levy is subject to the “101%” limitation under chapter 84.55 RCW, which limits annual increases in the total dollar amount of the levy to one percent with an additional adjustment for new construction. Ports may levy in excess of this 101% limitation by drawing on banked capacity or by asking voters to approve a levy lid lift (which requires simple majority voter approval).[2]
• A port district generally may incur LTGO debt in amounts equal to up to one-fourth of one percent of the value of the taxable property in the district.[3]

UTGO bonds. With super majority voter approval, Washington ports also may issue UTGO bonds within the port’s voted debt capacity for capital purposes other than the replacement of equipment. Ports seldom use this voter-approved financing tool.

• Payment and Security. UTGO bonds are paid from an excess property tax levy approved at the time the voters approve the UTGO bonds.
• Ports may seek voter approval to issue UTGO bonds at any of the four election dates per year. To qualify a bond measure for the ballot, a port must meet several deadlines well in advance of the election. State and local election laws and regulations govern the specific steps involved in placing a ballot measure before the voters and the restrictions on a port district’s communications with voters.[4]
• A port district generally may incur UTGO debt up to three-fourths of one percent of the value of the taxable property in the district.[5] A UTGO bond measure must be approved by at least 60 percent of the voters in the port district, in an election where voter turnout is at least 40 percent of the turnout in the most recent November election.

Port Revenue Bonds

Overview. Washington ports may issue revenue bonds for the purpose of carrying out all port district powers including acquiring, constructing, maintaining, repairing and operating port properties and facilities.[6]

Payment and Security. Revenue bonds are “special fund obligations” payable solely out of operating revenues of the port district.[7]  A port may obligate its general revenues or a specific portion of its revenues to pay port revenue bonds. Tax revenue may not be used to pay, secure, or guarantee the payment of port revenue bonds, but tax revenue may be applied to pay operating expenses, thereby increasing net operating revenues available for revenue bond debt service.

Limitations. Although port revenue bonds are not subject to any constitutional or statutory debt limitation, as a practical matter, the issuance of revenue bonds is limited by covenants (including debt service coverage requirements) and ratings criteria. For example:

• Covenants with outstanding revenue bondowners:
  • Rate covenant: Ports covenant to impose rates and charges sufficient to produce net operating revenue equal to debt service plus some coverage factor.
  • Additional bonds covenant: Ports covenant not to issue additional revenue bonds with a parity lien on gross revenues unless the port demonstrates (generally based on historic performance) sufficient net operating revenue to pay debt service on the outstanding bonds and the additional revenue bonds, plus some coverage factor.
• Ratings criteria: Rating agencies consider factors that affect net operating revenue of public ports, including factors subject to the control of the port (such as the strength of planning, budgeting and management, legal covenants, and terms of tenant leases for landlord ports, and shipping and other agreements in the case of operator ports). Some factors are outside the control of the port such as broader economic and trade trends that affect enplanements, container or other cargo volumes.

Port Special Facility Bonds

Overview. Washington public ports have issued special facility bonds to finance facilities leased to airport or seaport tenants (or to a consortium of tenants) for airport, dock and wharf facilities. As noted above, a port may obligate a specific portion of its revenues (such as airport passenger facility charges, customer facilities charges or lease revenues from a specific facility, rather than all of its operating revenues) to pay port revenue bonds.[8] Port revenue bonds generally carve “special facility revenues” out of the gross revenues pledged to the port’s general revenue bond owners, providing flexibility to subsequently pledge these special facility revenues to support a stand-alone special facility financing.

Special facility bonds are paid solely from lease payments received from the tenant or consortium of tenants, with no recourse to other port revenues. Lease terms must be reviewed carefully to ensure the lease fits within the governmental ownership safe harbor (as described under the heading “Tax Exemption” below), and provides sufficient security for bond owners, who will rely on the lease revenues for payment, including in the event of a tenant bankruptcy.

Local Improvement District Bonds

Washington public ports may issue local improvement district (“LID”) bonds, to be paid from assessments on property that will specially benefit from the financed improvements.[9]   A port may establish one or more LIDs within the port district, levy special assessments on all property specially benefited by the local improvement to pay costs of the local improvement, and issue LID bonds to be paid from these assessments. The assessments may be paid by property owners in annual installments over 10 years.

Ports are subject to the same procedures as cities for establishing the local improvement district and levying and collecting assessments.[10]   Although many Washington cities have used LID bonds to finance sidewalk, street and other improvements that specially benefit certain property owners, Washington public ports generally have not used this financing tool.

Tax Exemption

Overview. Certain port facilities may be financed on a tax-exempt basis under Section 103 of the Internal Revenue Code (the “Code”), which can provide significant interest savings to the port over the life of the bonds. Port bonds may be issued on a tax-exempt basis either as (a) “governmental” bonds or (b) “exempt facility” bonds, as described below.[11]  Governmental bonds may provide interest savings compared to exempt facility bonds. In addition, governmental bonds require fewer procedural steps, and offer more flexibility than exempt facility bonds.

Governmental Bonds. Ports often finance marina, parking and other governmentally owned public infrastructure with tax-exempt governmental bonds. Governmental bonds generally may be used to finance any governmentally-owned port facilities, so long as no more than 10 percent of the facility is used in a private trade or business (for example, under a lease or management contract).[12]  Certain short-term arrangements can be disregarded for the purposes of this 10 percent limit. In addition to reviewing whether the facility is leased to or otherwise used by a private trade or business, bond and tax counsel also review whether a private trade or business has a special economic entitlement to the financed facility.[13]  Facilities with private users may need to be financed with exempt facility – rather than governmental – bonds, depending on this analysis.

Exempt Facility Bonds. Airports, docks and wharves and other specified “exempt facilities” receive special treatment under the Code. Exempt facility bonds may be used to finance governmentally-owned exempt facilities, even when more than 10 percent of the facility is leased to or used by a private business. Ports often finance airport terminal or dock and wharf improvements with exempt facility bonds to accommodate leases to airline and other port tenants. In doing so, a port must make sure any lease of the financed facility does not transfer ownership of the facility to the private trade or business.[14]

Exempt facility bonds are subject to a variety of requirements and restrictions that do not apply to governmental bonds. At least 95% of the net proceeds of exempt facility bonds must be used for capital costs of the exempt facility, and there are restrictions on the use of proceeds for land acquisition, existing property and certain prohibited facilities. There is also a 2% limitation on costs of issuance to be financed with bond proceeds. Exempt facility bonds also are subject to public hearing requirements and maturity limitations and have less access to  remedial actions than governmental bonds.

Industrial Development Revenue Bonds

Ports also issue “industrial development revenue bonds” on a conduit basis through industrial or development corporations (“IDCs”) formed under chapter 39.84 RCW. A number of Washington ports have formed IDCs, and IDC bonds have been issued to finance industrial development facilities including “small issue manufacturing,” “solid waste disposal” and certain other industrial development facilities that qualify for tax-exempt financing.[15]

Bonds issued by an IDC are paid from and secured by payments from the private business owner or lessee of the financed facility, with no recourse to the port or its IDC. Many IDC bonds traditionally were issued on a variable rate basis, backed by a letter of credit between a bank and the borrower or lessee. In the current regulatory environment, banks are more inclined to purchase a bond directly (i.e. make a loan) rather than issue a letter of credit. Compared to a commercial loan, an IDC bond structure may be beneficial to a port customer if the bond meets the requirements for the loan to bear interest at a tax-exempt rate.

• Manufacturing facilities may be financed with IDC bonds on a tax-exempt basis under Section 144(a) of the Code. The term “manufacturing facility” means any facility that is used in the manufacturing or production of tangible personal property (including the processing resulting in a change in the condition of such property). The term includes facilities that are directly related and ancillary to a manufacturing facility, if certain other requirements are met.
• IDC bonds to finance a manufacturing facility also must be a “small issue” in order to be issued on a tax-exempt basis (currently not more than $10 million in bonds and not more than $20 million in capital expenditures for the facility).
• Solid waste disposal and other exempt facilities also may be financed on a tax-exempt basis through an IDC.

Securities Law Considerations

The federal securities laws prohibit fraud in connection with the sale of securities including port and IDC bonds. Specifically, it is unlawful to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, in connection with the sale of bonds.[16] A port or other state or municipal issuer may be liable to investors in connection with an intentional or even reckless material misstatement or omission in bond offering documents and other communications to the bond market. The SEC also has pursued enforcement actions based on negligence (that is, based on an issuer’s failure to take reasonable care in reviewing its disclosure documents for accuracy and completeness).

The SEC continues to focus on the municipal bond market, through both voluntary initiatives and through enforcement actions against state and municipal issuers including ports. Past resolutions to SEC enforcement actions against various Port authorities underscore that ports and other state and municipal issuers must take care in preparing and approving bond disclosure documents. Also among the consistent take-aways from these enforcement actions – as well as other SEC initiatives – are:  (1) an emphasis on adopting written disclosure policies and procedures and (2) the importance of periodic training regarding issuer responsibilities under the federal securities laws.

Conclusion

Washington public ports finance a broad range of airport, seaport and other marine, recreational, and industrial development facilities. Many of these facilities are financed with tax-exempt bonds, and the reduced financing costs are passed on to port tenants, customers and taxpayers. As ports look to finance projects, a review of the available financing tools, and the tax and securities law considerations, may be helpful.  The legal requirements with respect to bond issuance can be complex, particularly the requirements relating to tax exemption. Significant attention should also be paid to the securities antifraud laws. If you have any questions regarding finance tools available to Washington public ports, please contact any of our public finance attorneys.

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[1] RCW 53.36.030 and chapter 39.46 RCW.

[2] In addition to regular and excess property taxes, Washington port districts also may impose industrial development district (“IDD”) and dredging levies. Pursuant to RCW 53.36.160, ports may impose an IDD levy to pay costs of improvements within IDDs created by the port. In 2015, the Washington legislature amended the IDD levy statute to provide an additional multi-year levy option for port districts’ IDD levies meeting certain criteria. With voter approval, a port also may impose a dredging levy for dredging, canal construction, leveling, or filling.

[3] RCW 53.36.030(1).  Port districts that had less than $800,000,000 in assessed value during 1991 may incur LTGO debt up to three eighths of one percent of the value of taxable property in the district, subject to additional requirements.

[4] For 2025, the election dates are February 11, April 22, August 5, and November 4. The filing deadlines for the elections are December 13 (of the prior year), February 21, May 2 and August 6, respectively. The filing deadline for the February 2026 special election is December 12, 2025.

[5] RCW 53.36.030(2).

[6] See RCW 53.40.010 and .020. See also RCW 39.46.150, 39.46.160 (alternative municipal revenue bond authority) and RCW 14.08.112, 14.08.114 (alternative airport revenue bond authority).

[7] See RCW 53.40.040.  

[8] RCW 53.40.040.

[9] See RCW 53.08.050.  

[10] Chapter 35.43 RCW.

[11] Governmental tax-exempt bonds are sometimes referred to as “non-AMT” bonds and exempt facility bonds as “AMT” bonds, in reference to the applicability of the alternative minimum tax to the latter. Interest on exempt facility bonds is subject to alternative minimum tax (AMT) while interest on governmental bonds generally is not.

[12] The private payment and private loan tests of Section 141 of the Code also apply.

[13] For example, through an airline use agreement.

[14] A lease that meets the safe harbor provisions under Section 142(b)(1) of the Code will not be deemed to have transferred ownership to the private business. This safe harbor requires the lessee to make an irrevocable election not to claim depreciation or an investment credit with respect to the facility, requires the lease term to be no more than 80 percent of the reasonably expected economic life of the property, and requires the lessee not have an option to purchase the property other than at fair market value at the time such option is exercised, all as further provided in the Code. Similar requirements apply to management contracts.

[15] Although chapter 39.110 RCW was enacted in 2012 to authorize taxable industrial development financings, as a practical matter, taxable IDC  bonds may not provide a benefit compared to a commercial loan.

[16] Section 17(a) of the Securities Act of 1933 and Rule 10(b)(5) under the Securities and Exchange Act of 1934.

A Note: This publication is for informational purposes and does not provide legal advice. It is not intended to be used or relied upon as legal advice in connection with any particular situation or facts.

Presenters: Partners Tobias Tobler and Alison Benge

Wednesday, February 26, 2025

10:00-11:00am Pacific Time

Please use this link to register.

Looking Ahead

Keep an eye out for future PacificaU public finance presentations in 2025, including:

Bonds 201: Securities Law

A review of the antifraud and other securities law requirements applicable to municipal bonds. Includes an update on recent Securities and Exchange Commission enforcement proceedings, and a refresher on compliance procedures. This session also is intended to satisfy compliance procedures that require periodic securities law training. Date and time TBD.

Bonds 201: Tax Compliance

A review of the federal tax requirements that apply to tax-exempt governmental bonds. Includes discussion of arbitrage requirements and private use limitations, an update on post-issuance tax compliance requirements, and a refresher on compliance procedures. This session also is intended to satisfy compliance procedures that require periodic tax law training. Date and time TBD.

Ballot Measures

A review of state laws and regulations that govern bond and levy propositions by school districts and other municipalities. Includes discussion of the Public Disclosure Commission’s guidelines and restrictions on the use of public facilities and resources in election campaigns. Date and time TBD.

Not on our mailing list? Sign up here to receive updates about future public finance trainings and alerts about new developments in public finance law.

*Note: If you would like a training on any bond-related topic for your entity, please reach out to Mia Wiltse, mia.wiltse@pacificalawgroup.com.

The Pacifica public finance team representing Spokane County was led by Partners Deanna Gregory and Stacey Crawshaw-Lewis, and included tax Partner Alison Benge, Associate Tobias Tobler, and Paralegal Kristin Patterson.

Follow this link to read the Spokane International Airport’s press release announcing the sale.

Writing as guest authors for the Municipal Research and Services Center (MRSC) Insight Blog, Pacifica attorneys Alison Benge and Stacey Crawshaw-Lewis explain this new source of funding for tax-exempt entities undertaking clean energy projects, and look at project eligibility, how elective payments work, and what a tax-exempt entity must do to claim these benefits.

“Cities, school districts, ports, transit agencies, and other tax-exempt entities have already claimed the elective payments for a range of qualifying projects, including solar installations, waste energy recovery, energy storage, and bus and other fleet electrification,” Alison and Stacey write.

Please follow this link to read their article on the MRSC website.

For questions regarding the IRA’s clean energy federal tax credit provision and other public entity options for funding clean energy infrastructure projects, please reach out to Alison, Stacey, or any member of Pacifica’s public finance team.

In June 2024, the United State Supreme Court and the United States Court of Appeals for the First Circuit issued opinions on matters of significance for municipal debt issuers, ranging from bankruptcy to administrative law to securities enforcement proceedings.

Then, on August 22, a group of nine U.S. financial regulators, including the Securities and Exchange Commission, the Department of the Treasury, and the Federal Housing Finance Agency, published joint rules under the FDTA, which marks the first step in rulemaking under the FDTA.

Below is a brief summary of the court decisions and the data transparency rules as they relate to municipal bond issuances.

First Circuit Decision on Rights of Municipal Bondholders in Bankruptcy Proceedings

On June 12, 2024, the First Circuit issued a decision in In re Fin. Oversight & Mgmt. Bd. for Puerto Rico, 104 F.4th 367 (1st Cir. 2024), in which the Court considered the rights of the holders of certain revenue bonds (the “Bonds”) issued by the Puerto Rico Electric Power Authority (“PREPA”) before PREPA entered bankruptcy-type restructuring proceedings. 104 F.4th at 376. In reaching its ultimate determination that such Bondholders have a claim on PREPA’s estate for the principal amount of their bonds (thereby reversing the federal district court’s opinion), the Court articulated legal conclusions and reasoning of potential significance to municipal issuers.

First, applying Puerto Rico law to interpret the trust agreement at issue, the Court held that language in the agreement’s preamble pledging “the revenues of the System” as “security for the payment of” the Bonds was not merely prefatory, but instead established a security interest in such revenues. Id. at 382–83. In so holding, the Court rejected the notion that such an agreement must include “magic words” such as “lien” or “charge” to create a security interest; rather, the test is whether the agreement “indicate[s] an objective intent” to do so. Id. at 383 (internal alterations omitted).

Second, to determine the scope of the term “revenues of the System,” which the agreement did not explicitly define, the Court looked to the agreement’s provision requiring an opinion of counsel to accompany any bond issuance. Id. at 384. Under this provision, such an opinion must affirm the agreement’s creation of “a legally valid and effective pledge of the Net Revenues [i.e., gross revenues minus expenses] and of the moneys, securities and funds held or set aside under [the] Agreement as security for the bonds.” Id. Citing this provision, the Court construed “revenues of the System” to mean all of PREPA’s Net Revenues, regardless of the fund into which they were deposited. Id. at 384–88. In reaching this holding, the Court rejected a proposed interpretation of the agreement under which the Bondholders’ collateral would consist only of those Net Revenues deposited into debt service funds, observing that such a reading was inconsistent with the expectations of “an objectively reasonable party to the transaction” and would be misleading to investors. Id. at 386.

Third, relying upon Puerto Rico law, the federal bankruptcy code, and prior case law, the Court held that the Bondholders’ lien on Net Revenues included not only current Net Revenues but also future Net Revenues that PREPA has not yet acquired. Id. at 388–90. As support, the Court specifically cited section 928 of the bankruptcy code for the proposition that debtors may permissibly grant liens on future special revenues (such as the Net Revenues pledged by PREPA) and “that such liens continue to attach to revenues acquired after the filing of a bankruptcy petition.” Id. at 388–89 (citing 11 U.S.C. § 928(a)).

Elsewhere in its opinion, the Court agreed with the Bondholders that their lien on Net Revenues was perfected (or will be perfected) and was therefore not avoidable in bankruptcy, id. at 391–95, and that the proper amount of the Bondholders’ claim is the face value of the bonds plus accrued interest (approximately $8.5 billion), id. at 396–98. The Court rejected, however, the Bondholder’s argument that it had recourse beyond the collateral securing the Bonds. In so holding, the Court cited section 927 of the bankruptcy code, which denies “special revenue bondholders any recourse to the general funds of a municipality, which are often subject to statutory or constitutional limits on debt issuance.” Id. at 399 (internal quotation marks omitted). Added the Court, “the Trust Agreement expressly states that the [Bonds] are not general obligations of the Commonwealth of Puerto Rico. So, section 927 applies, and the Bondholders’ recourse is limited to their collateral.” Id. (internal citations and alterations omitted).

As noted above, the First Circuit’s holdings and reasoning rest upon the Court’s interpretation of the specific language of the agreement at issue and the laws applicable to PREPA. Moreover, the Court’s opinion is not binding outside of the First Circuit, which includes only New England and Puerto Rico. Nonetheless, the Court’s opinion offers an instructive example of how a court may apply common contract law principles and reasonable investor expectations to resolve ambiguities in authorizing legislation and agreements, and apply federal bankruptcy law to define the scope of security pledged toward the payment of municipal bonds.

Supreme Court Overturns Chevron Deference, Opening Door to Legal Challenges to Actions of Municipal Issuers

On June 28, 2024, the Supreme Court issued its opinion in Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024), holding that, under the federal Administrative Procedure Act (the “APA”), federal courts may no longer defer to agency interpretations of ambiguous statutes, overturning Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). By dispensing with Chevron’s deferential standard, Loper Bright appears likely to curtail significantly the power of federal agencies to interpret the statutes they administer, including in areas with direct impacts on municipal issuers.

In Chevron, issued 40 years ago, the Court fashioned the modern standard for courts to apply in reviewing federal agency actions when a statute is silent or ambiguous with respect to the agency action at issue. According to Chevron, under such circumstances, “a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency.” 467 U.S. at 844. Since its inception, thousands of federal court decisions have cited this standard—referred to in shorthand as “Chevron deference”—in upholding challenged agency actions.

In Loper Bright, a 6-3 majority discarded the Chevron standard as incompatible with “the command of the APA that the reviewing court—not the agency whose action it reviews—is to decide all relevant questions of law and interpret statutory provisions.” 144 S. Ct. at 2265 (internal quotation marks and alterations omitted). Explaining its overturning of the Court’s 40-year precedent, the majority emphasized that the Chevron standard was too indeterminate to constitute a workable rule, and that Congress (and others) could not reasonably rely upon Chevron given its inconsistent application by the courts. Id. at 2270–72. The dissent, penned by Justice Kagan, disagreed forcefully with the majority decision, opining that, as a practical matter, federal courts lacked the specialized expertise to resolve gaps and ambiguities in highly technical and scientific areas of lawmaking—a process best deferred to experts in the field, as under Chevron. See id. at 2298–99.

Loper Bright’s full scope and impact will emerge in time as the lower courts interpret and apply the decision’s mandate. But many legal commentators have predicted that the opinion will lead to a profusion of new legal challenges to agency rulemaking, and that, in the absence of Chevron deference, such agency actions are considerably more susceptible to unraveling by the federal judiciary. These include agency actions and regulations within fields that substantially impact the finances and operations of municipal issuers, such as the environment, affordable housing, and securities.

Supreme Court Ends SEC Practice of Fining Fraud Defendants in Admin Proceedings, Including in Muni Financings

On June 27, 2024, the Supreme Court issued its opinion in Securities and Exchange Commission v. Jarkesy, 144 S. Ct. 2117 (2024), holding that the Constitution’s Seventh Amendment entitles a defendant to a jury trial when the U.S. Securities and Exchange Commission (“SEC”) seeks civil penalties against such defendant for securities fraud. Id. at 2124–25, 2130. The underlying dispute in Jarkesy arose from the SEC’s adjudication of, and imposition of a fine against, the defendant before an SEC administrative judge. Id. at 2124–25. Writing for a 6-3 majority, Chief Justice Roberts explained that the Seventh Amendment’s jury trial guarantee embraces all suits that are not of equity or admiralty jurisdiction, including statutory claims that are “legal in nature.” Id. at 2128. Applying this test, the Court concluded that because the civil penalty imposed against the defendant was designed to “punish and deter” (as opposed to compensate), it is a type of remedy traditionally enforced in courts of law (as opposed to equity), and that the defendant was therefore entitled to a jury trial. Id. at 2130.

The Jarkesy decision immediately ends the SEC’s common practice of imposing fines against fraud defendants in administrative proceedings, including proceedings that arise from municipal financings. The decision’s ultimate sweep may prove much broader, however. As Justice Sotomayor’s dissent noted, courts may apply Jarkesy to strip dozens of federal agencies—including the Consumer Financial Protection Bureau, the Environmental Protection Agency, and the Food and Drug Administration—of their power to impose civil penalties in administrative proceedings. Id. at 2173–74. Jarkesy thus further diminishes (with Loper Bright) powers traditionally enjoyed by the administrative state.

U.S. Financial Regulators Publish Proposed Rules under the Financial Data Transparency Act of 2022 (the “FDTA”)

On Thursday, August 22, 2024, nine regulatory agencies, including the Securities and Exchange Commission (“SEC”), the Department of the Treasury, and the Federal Housing Finance Agency, published joint rules under the FDTA, marking the first major milestone for implementation of the federal law. The FDTA tasks a select group of nine regulators to develop a set of joint data standards that include common identifiers for collection of information reported to covered agencies (e.g. structured data), which must include a common nonproprietary legal entity identifier that is available to all entities subject to the FDTA. Among other requirements, the joint data standards must, to the extent practicable, render such data machine-readable and fully searchable. Once the joint data standards are adopted, each of the nine regulatory agencies will adopt agency-specific rules applying those data standards within their focus area.

Municipal bond issuers and borrowers are looped under the umbrella of the FDTA because the FDTA requires the SEC to adopt rules applying the data standards for information submitted to the Municipal Securities Rulemaking Board (the “MSRB”). This means that the FDTA may impact the format for initial disclosure (preliminary and final Official Statements), ongoing disclosure (annual filings, operating data, and notice of the occurrence of certain events), and voluntary disclosure, filed by municipal issuers and borrowers with the MRSB. These entities will also be required to obtain a legal entity identifier. The FDTA does not require new disclosure, but potentially alters the format and machine readability of disclosure.

The FDTA is implemented in phases. Delivery of the proposed data standards by the joint regulators marks completion of the first step. The published proposed rules are available at: https://www.govinfo.gov/content/pkg/FR-2024-08-22/pdf/2024-18415.pdf. Comments on the proposed rules are due October 21, 2024, and final rules are scheduled to be adopted by December 2024. The SEC then has two years (by December 2026) to consult with market participants and adopt rules applying the data standards to information submitted to the MSRB. The FDTA does not specify when the SEC must propose rules prior to adoption or how the MSRB must implement the rules once adopted.

Although the SEC is required to scale its rules to minimize market disruption and has broad discretion for implementation, municipal market participants are understandably concerned about the potential burdens that the FDTA may impose on issuers and borrowers who are already working with limited staff and funds. As a member of the Board of Directors of the National Association of Bond Lawyers (“NABL”), Pacifica Partner Deanna Gregory is leading a NABL FDTA Task Force charged with working with the SEC and other industry groups as the rules are developed, including commenting on the proposed regulations. Issuers and borrowers are encouraged to comment individually by the October 21, 2024 deadline, or if you would like to share your observations with Deanna, she can be reached at 206.245.1716 and deanna.gregory@pacificalawgroup.com.

For questions regarding these updates, please reach out to any member of our Public Finance team.

Click here to download a PDF of this article.

This publication is for informational purposes and does not provide legal advice. It is not intended to be used or relied upon as legal advice in connection with any particular situation or facts.

Pacifica Law Group founding partner Stacey Crawshaw-Lewis will moderate a panel discussion at the upcoming 2023 Ferries Conference, which brings together transit agency personnel, community leaders, and elected officials whose communities may benefit from marine transit.

The conversation, which will take place on Tuesday, October 3 at the Seattle Renaissance Hotel, will focus on financing options for marine transit and will include discussion of federal and state financing programs, as well as private sector financing tools. The panelists will also discuss recent legislation affecting the marine transit sector.

Stacey, who leads Pacifica’s public finance practice group, will be joined in the panel discussion by Stephanie Bowman, Washington State Department of Commerce’s Maritime Industry Director; federal government relations professionals Ray Bucheger of FBB Federal Relations, and Justin LeBlanc of Justin LeBlanc Government Relations; and Amanda Wyma-Bradley, a senior policy advisor on transportation issues for U.S. Senator Patty Murray.

For more information visit the Ferries Conference Site: https://www.ferriesconference.com/agenda/

To learn more about Pacifica’s public finance practice or to ask questions about financing options for marine transit or other public works projects, please reach out to Stacey or any member of our public finance team.

Pacifica founding partner Stacey Crawshaw-Lewis will speak at the 68th annual Washington Finance Officer’s Association (WFOA) Conference next week as part of a roundtable discussion about Tax Increment Financing (TIF), a public financing tool that Washington State counties, cities, and ports may use to fund public infrastructure projects.

Although TIF is a traditional public financing method that has been in use in other areas nationally and internationally for several decades, the Washington Legislature first passed TIF legislation in May 2021 (ESHB 1189, the “TIF Act”). Previous attempts at TIF legislation conflicted with certain provisions of Washington law.

TIF is a “value capture” approach to financing public improvements. TIF bonds are issued to finance public improvements. The bonds are paid from increased property taxes (the captured value) in the TIF area generated by rising property values resulting from the public improvements.

The TIF Act allows counties, cities and port districts (or any combination of the three) to form increment areas, and allocates regular property taxes of overlapping local taxing districts generated by increased property tax values within the increment area to the sponsoring entity to finance public improvement costs. An increasing number of local governments are using TIF financing.

Stacey will participate in the WFOA TIF Roundtable discussion on Friday, September 22 at 10:30am.

For more information about TIF, please read our Public Finance update. If you have any questions about TIF, please reach out to Stacey or any member of our Public Finance team.

The novo on 52nd development brings amenity-rich, affordable housing to Lynnwood, WA.

Apartments in novo on 52nd include fully equipped kitchens, full-size washers and dryers, air conditioning, and balconies or patios—ensuring the modern, 1- to 4-bedroom homes are move-in-ready and financially accessible. The novo on 52nd apartments also offer significant amenities to residents, including raised community garden beds, a community clubhouse with a computer room, fitness center, and indoor basketball court, and secure, covered onsite bike storage, among other features. Individuals and families who meet certain income restrictions were able to apply for the apartments, and at the time of writing the development was 84 percent occupied and 99 percent leased.

Pacifica Law Group partners Faith Pettis and Jon Jurich, and associate Katherine Van Gunst, served as bond counsel to HASCO with assistance from John De Lanoy and Erik Jennings, as HASCO’s real estate counsel. The team worked on this redevelopment of a previously existing HASCO apartment, leveraging tax-exempt bonds and low-income housing tax credits.

HASCO entered into a public-private partnership with the Inland Group, an experienced Spokane-based affordable housing developer. HASCO provided access to tax-exempt bonds and low-income housing tax credits. The Inland Group handled all aspects of the development, from demolition of the existing buildings to construction and lease-up of the new community. Now, HASCO will buy the Inland Group’s partnership interests and assume full ownership of novo on 52nd.

“The trust and cooperation between HASCO and the Inland Group allowed each side to do what it did best and ensured a successful, efficient outcome,” said Pettis. “We were so pleased to be part of this groundbreaking public-private partnership.”

With a housing finance practice focused exclusively on representing public entities working to increase affordable housing opportunities, Pacifica is delighted to see and celebrate HASCO’s successful completion of novo on 52nd, which brings 242 beautiful new homes to Lynnwood and the greater Seattle metropolitan area.

For more information about Pacifica’s housing finance services, please visit our practice page.

Below we discuss the proposed rules, and highlight additional helpful resources and next steps.

Definition of Applicable Entity

The IRA authorizes direct elective payments to “applicable entities” in lieu of tax credits to incentivize a range of clean energy investments, including solar and other renewable energy projects and vehicle fleet electrification. The proposed rules define “applicable entity” broadly to include, among other state and local government entities, any agency or instrumentality of any state or political subdivision. The IRS explains: “States, political subdivisions and their agencies and instrumentalities are all eligible for elective pay. This includes the District of Columbia. It also includes cities, counties and other political subdivisions. Water districts, school districts, economic development agencies, public universities and hospitals that are agencies and instrumentalities of states or political subdivisions are also included.” The proposed rules’ inclusion of agencies and instrumentalities would make state agencies, public development authorities, and other instrumentalities eligible to receive direct elective payments for qualifying projects.

Other Clarifications

The proposed rules also clarify that the applicable entity generally must own the property that gives rise the eligible credit (or undertake the activities giving rise to the credit) through direct ownership, through ownership by a disregarded entity, through ownership of an undivided interest in a tenancy-in-common, or pursuant to certain joint operating arrangements (but not through a partnership). In addition, the proposed rules provide several examples of how state and local governments may combine sources of funding for the project, including grant funding and bridge financing, with elective payments.

Elective Payment Guidance

• The IRS published this helpful chart summarizing the tax credits that are eligible to be distributed as elective payments. The chart also lists the bonuses that increase payment amounts, including bonuses for meeting prevailing wage, qualified apprenticeship and domestic content standards.
• The IRS published this fact sheet for state and local governments that explains the process for claiming an elective payment.
• The IRS also published FAQs describing the elective payments.

The White House previously released an updated guide to the elective payments as well as the IRA’s grant and loan programs. States and municipalities are eligible recipients for a number of these grant and loan programs, including for clean heavy-duty vehicles, qualifying port equipment and technology, neighborhood access and equity, adoption of updated building energy codes, climate pollution reduction strategies, and a number of other clean energy and climate initiatives.

Next Steps

Comments on the IRS proposed rules are due on August 14, 2023. If you have questions regarding these incentives, please contact any of our public finance attorneys.

A Note: This publication is for informational purposes and does not provide legal advice. It is not intended to be used or relied upon as legal advice in connection with any particular situation or facts.

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