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Memorandum: Administration Proposals on Tax-Exempt Bonds 1 (June 1982)

handle is hein.congrec/cbo10217 and id is 1 raw text is: CONGRESSIONAL BUDGET Alice M. Alice M Rivin U.%. nunceAliceM Director WASHINGTON, 5fe MEMORANDUM DATE: 19823une 11, TO: THE HONORABLE ROBERT DOLE CHAIRMAN, SENATE FINANCE COMMITTEE FROM: Alice M. Rivlin Director SUBJECT: As you requested in your letter of April 27, 1982, we have reviewed the Administration's small issue industrial revenue bonds and (2) require that assets financed by tax- exempt bonds be depreciated over an extended recovery period. Our conclusions about the effeseW proposals follow. REVISED CAPITAL EXPENDITURE LIMIT The Administration proposes to deny the use of small issue IRfstrge businesses. These are defined as firms with capital expenditures of more than $20 million in the six years preceding the bond issue. Based on investment tax credit data and the assumption that roughly 40 percent of small issue financing is for equipment, it is unlikely that fftrthsannual receipts of $65 million or less will be affected by the ftpideltratTdrs proposal would affect the top Fortune 1000 industrial firms, which had receipts in 1980 of more than $125 million, and the top Fortune 50 nonindustrial firms. It would also affect many fiiths annual receipts between $65 and $125 million. Although these corporations represent only 0.2 percent of all firms, they probably account for between 30 and 40 percent of all fRncing. It is difficult to be precise because information on IRB users nationally, by assets or annual receipts, is unavailable. Information from local development agencies and from banks, which are the main purchasers of small issues, indicates that the primary users of these bonds are firms with annual receipts of less than $50 nilflAoiirms tend to be closely- held establishments with good credit records, rather than fledgling companies. Their net income puts them in the $6rcent bracket. If the experience in New York City or Massachusetts is indicative, roughly three-fourths of the firms using IRB s have annual sales of less than $20 million.

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