bond-basics

TEFRA

The acronym for the Tax Equity and Fiscal Responsibility Act of 1982, which applied additional tax considerations to Tax-Advantaged Bonds.

Section 147(f) of the Code provides that a Private Activity Bond is not a qualified Private Activity Bond (and therefore not a Tax-Exempt Bond) unless the Issue of Bonds receives Public Approval either (1) by the applicable elected representative following a public hearing for which reasonable public notice was provided; or (2) by voter referendum. The first method of public approval is the prevailing method used. Practitioners often refer to the public approval requirement as the “TEFRA” requirement because it was originally put in place as part of the Tax Equity and Fiscal Responsibility Act of 1982.

Reasonable public notice means notice that is designed to inform residents of the approving governmental unit of the proposed Issue of Bonds to finance the project. Notice must be provided at least seven days prior to the Public Hearing and must state the time and place for the Hearing. It must contain a description of the project, the maximum Principal amount of the Bonds to be issued for the project, the name of the project’s owner or principal user and the location of the project. The Public Approval must occur within one year before the issuance of the Bonds and must include both Issuer Approval and Host Approval (in most cases, Issuer Approval and Host Approval will be the same approval since the project will be within the Issuer’s jurisdiction).  For a plan of financing under which multiple Bond Issues are expected for the same project, the public approval must be obtained within one year before the first Bond Issue is issued under the plan and all issues under the plan must be issued within three years after the issue date of the first Bond Issue.  A new public approval is not required for an Issue of Current Refunding Bonds if the Bonds to be refunded met the public approval process and the average Maturity Date of the Refunding Bonds is not later than the average Maturity Date of the Refunded Bonds. A proposed use of proceeds that would be a substantial deviation from the project described in the public approval may be curable by repeating the public approval process under certain conditions set forth in the Treasury Regulations.

Dive Deeper on Tax Issues

Learn more about how various aspects of tax law intersect with municipal securities.


See Also

Private Activity Bond (PAB)

The term used in the Code to describe any bond issued as part of a bond issue that meets both of the private business tests or meets the private loan financing test.

TEFRA Notice

A notice of a TEFRA hearing, which, under the Treasury Regulations, must be published one time, at least seven days prior to the TEFRA hearing, in a newspaper of general circulation in the geographical jurisdiction of the Issuer of the tax-exempt bonds and in any “host jurisdiction” (or on the appropriate governmental entity’s website).

TEFRA Hearing

A public hearing held by an Issuer, following publication of a TEFRA notice, to give the public an opportunity to comment on a proposed private activity bond (PAB) issue.

TEFRA Approval

The approval of the bond issue by the appropriate governmental unit after a TEFRA hearing.

Host Approval

Approval by the governmental unit in the geographic jurisdiction which contains the site of the project to be financed by a private activity bond issue, as required by TEFRA.

Hudson Yards Rail Yards

Start with the Bond Basics

Temporary Period

The period of time (often set forth in the tax certificate), during which a particular category of proceeds may be invested in higher yielding investments without the issue being treated as arbitrage bonds under Section 148 of the Code.