U.S. Rep. Dennis Ross (FL-15) introduced a bill (The City Act) that would allow cities to take advantage of historically-low interest rates by restructuring tax-exempt municipal bonds so that they can be paid off earlier. The City Act was introduced to help the City of Lakeland after they requested authority from the Internal Revenue Service (IRS) to take this step to recoup substantial savings and have been ignored for more than 18 months.
"The City of Lakeland has been waiting for over a year and a half for an answer from the IRS on whether they can call in these bonds, and that is unacceptable," said Ross. "Every day that these bonds sit without an answer while the IRS ignores their case is another day the city loses money that could go to water systems, road improvements, and power upgrades."
For the City of Lakeland, the issue rests on $55.9 million worth of bonds issued in 1989. Even though the bonds were callable on 1999, the city structured to pay the principle and interest through their maturity in 2019. However, the city structured the escrow account to allow for an early call and if allowed to move forward, the city could see a savings of $8 - 10 million. Without an official ruling from the IRS, the bonds are simply waiting in limbo.
* The escrow restructuring entails retiring certain existing bonds, selling a portfolio of U.S. Treasury securities, and unwinding certain other contracts. Without guidance from the IRS, the transaction would potentially conflict with federal regulations and the city could be fined or assessed fees in direct conflict of previous agreements with bondholders.
* On October 25, 2011, the City of Lakeland sent an official letter to the IRS inquiring whether they had the authority to proceed with restructuring an existing tax-exempt bond escrow account. They asked for an official ruling from the IRS because doing so without one could result in fees and fines.
* As of March 13, 2013, the IRS still had not provided any ruling on the letter.
* The City Act simply allows the city to move forward with restructuring instead of waiting for a ruling by the IRS.