The key changes included in the final regulations include a 60 percent reduction in the fee the Treasury imposes on local governments on purchases of the SLGS
At the meeting at NLC where Rubin announced the new SLGS
program for cities, Rubin responded that the IRS and Treasury would work with cities on the issues, but he did note that the IRS has a responsibility to enforce the law.
Because of the inflexibility and costliness of the SLGS
program, however, state and local governments have tended to use the more cost-effective open market Treasury securities.
City leaders and other representatives of the 45-member state and local organizations which make up the Public Finance Network have been working with the Treasury for a number of years to seek changes to make the SLGS
program more workable and a better alternative for cities.
This proposal would 1) apply to private activity bonds for governmentally owned facilities exempt from the state volume cap as well as to governmental bonds, 2) extend the safe-harbor relief to pool participants, 3) recognize "reasonable expectations" rather than relying solely on actual spending experience, 4) permit a penalty payment rather than actual rebate if spending targets were missed, 5) permit issuers without taxing authority to take advantage of the small-issuer exception, and 6) modify the rules governing yield burning and investment of sinking and 4-R (reasonably required reserve and replacement) funds in Treasury SLGS
will be purchased and placed in an escrow account to refund the outstanding bonds.
Because open-market yields generally exceed tax-exempt yields, the yield-restricted rate may be achieved by blending the higher yield open-market securities to the restricted yield by the purchase of special zero-interest SLGS
for the final period of the escrow.