The massive economic stimulus package that cleared the U.S. House last week offers some aid for healthcare borrowers shut out of municipal bond markets.
Muni bond boost
Incentives for buying tax-exempt debt part of bill
The $819 billion bill, which passed 244 to 188 along party lines, includes provisions to loosen the tight and costly municipal bond market with incentives for banks to buy up tax-exempt debt. Lawyers and finance experts said the legislation could bring much-needed money into the market, which has been closed to all but the strongest borrowers since last falls near financial collapse.
There is no real market, said Anne Phillips Ogilby, a Boston-based municipal bond attorney with Ropes & Gray. The bill seeks to bring more buyers into the municipal market, which has contracted as mutual funds have struggled and investors have fled to cash, she said. Ogilby said banks have the sophistication and resources to invest quickly in the municipal bond market, where individual investors face the hurdle of significant diligence now that bond insurers no longer provide a quick guarantee.
Under the bill, banks would receive two limited financial incentives to buy tax-exempt debt issued in 2009 and 2010. One would give banks access to interest deductions enjoyed by corporations that invest in municipal bonds, however, the law requires such investments be a minimal amount of overall assets.
The other incentive would allow banks an interest deduction on debt used to buy up to $30 million in municipal bonds per year, per borrower. As it stands, the limit is $10 million per bond issuer. Not-for-profit hospitals rely on state or local authorities to issue tax-exempt debt, and such authorities may handle multiple bond issues per year.
Mike Rock, a lobbyist with the American Hospital Association, argued that the threshold, once raised to $30 million per borrower, could restart a significant number of capital projects now delayed by the credit crunch. Its tough out there, said Rock.
Municipal bond experts cautioned that the provisions, though helpful, will likely have a limited effect on the tight municipal market. I dont know if thats going to be solved through legislation, said Chad Mulvany, a Healthcare Financial Management Association technical manager. The markets going to have to stabilize and people are going to have to get back to a normal tolerance for risk, he said.
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