Settlement Procedures for Debt Service Payments
Issuers of government debt have a fiduciary responsibility to manage their funds in a way that assures timely and accurate payment of debt service principal and interest – a responsibility that includes full use of funds for the benefit of the government until the payment due date. We’ve become accustomed to using electronic fund transfers, but it’s a good idea to take a look at GFOA’s best practice, Settlement Procedures for Debt Service Payments, to ensure that your government’s debt principal and interest payments are made on a timely and cost effective basis. For example, issuers should ensure that appropriate contractual terms and internal procedures are in place, and should negotiate terms allowing for full investment of funds by the government until the payment due date.
GFOA Standing Committee Winter Meetings Head to the Hill
On December 4-5, 2017, GFOA committee members gathered in Washington, D.C. for the annual winter standing committee meetings. As usual, the committees met to discuss current and forthcoming best practices to be approved by GFOA’s executive board in February. These best practices include debt service payments, investment fee policies for retirement systems, and succession planning, among many others.
In addition, the Black Caucus of the GFOA hosted a lunch where standing committee members heard from the Congressional Black Caucus (CBC) Executive Director Fabrice Coles about CBC’s priorities in the coming year.
The keynote panel gave committee members an opportunity to discuss the current state of affairs regarding federal tax reform efforts. The panel consisted of representatives of the National Association of Bond Lawyers, National Association of State Retirement Administrators, Securities Industry and Financial Markets Association, American Public Power Association, and the U.S. Conference of Mayors.
At the Tuesday breakfast, the Women’s Public Finance Network Co-Chairs Debby Cherney and Anne Harty made a presentation about a project that is underway to help enhance GFOA’s current mentoring efforts in public finance.
Committee members and GFOA staff also teamed up to visit the Department of Treasury, Congressional Budget Office, and Senate offices on Capitol Hill. In the Senate, GFOA standing committee members discussed tax reform, including preserving advance refundings and private activity bonds, with Wisconsin Senator Ron Johnson, Kansas Senator Pat Roberts, Louisiana Senator Bill Cassidy, and Texas Senator Ted Cruz. Members also met with staff from the offices of House Speaker Paul Ryan, Nebraska Senator Debra Fischer, and Missouri Senator Roy Blunt.
Treasury Closes SLGS Window
On December 8, 2017, the U.S. Treasury Department announced that it will suspend sales of state and local government series (SLGS) securities until further notice. The suspension is aimed at helping the Treasury manage debt subject to the federal debt ceiling. Suspension of SLGS sales has become a standard component of the extraordinary measures implemented by the Treasury Department over the past several years to keep the government from defaulting on its debt during partisan congressional and White House battles over increasing the debt ceiling.
The SLGS window has significant implications in the context of the current tax reform debate – the most common investments for tax-exempt refunding bond escrow accounts are federally issued SLGS and open market Treasury investments (T-bills, notes, and bonds). In the past, when the Treasury SLGS window has been closed to issuers due to Federal budgetary inaction, escrows are either funded by cash or bond proceeds, or funded with the purchase of eligible open market investments. However, if issuers are able to realize the arbitrage yield, and SLGS are available, GFOA recommends using SLGS because of the ease and reliability of execution.
Due to the urgency of the issue, GFOA will closely monitor the Treasury Department and alert members as quickly as possible to the reopening of the SLGS window.
Tax Reform Overcomes Final Hurdles, Will Become First Major Rewrite in Decades
Tax reform legislation is on the verge of enactment, having overcome the final hurdles of a House and Senate vote on compromise language. Republican leaders released the final draft of the tax reform bill late Friday, December 15, just weeks after the House and Senate passed their respective, and slightly differing, versions of the tax bill. The House passed the compromise bill on TO COME by a vote of TO COME. The Senate followed on TO COME with a vote of TO COME. The president is expected to sign the bill before year’s end.
The conference bill blended provisions from the House and Senate versions. On the individual side, the bill lowers rates – the percentages are 10, 12, 22, 24, 32, 35, and 37 – but does not reduce the number of tax brackets, as originally planned. The compromise bill drops the corporate tax rate from 35% to 21%. Additionally, the standard deduction is doubled to $12,000 for individuals and $24,000 for married couples.
Most notably, many of the individual tax breaks and changes would expire after eight years, in order to keep the 10-year cost of the package under the $1.5 trillion cap set by the budget framework and to avoid any pitfalls to passage under Senate rules. This GFOA Member Alert recaps how GFOA priorities, like the state and local tax deduction, fared in the final bill.
IRS News Roundup
Early Due Dates for W-2, W-3 and Form 1099-MISC
Employers face a January 31, 2018, due date for filing 2017 Forms W-2 and W-3 with the Social Security Administration. This date applies to both electronic and paper filers.
Form 1099-MISC is due to the IRS and individuals by January 31 when reporting non-employee compensation payments in box 7.
Penalties for failure to file correct information returns or furnish correct payee statements have increased and are now subject to inflationary adjustments. These increased penalties are effective for information returns required to be filed after December 31, 2015.
Form 1098-T Reporting Changes and Limited Penalty Relief for 2017 Returns
Eligible educational institutions are required to report the total amount of payments received for qualified tuition and related expenses from all sources during the calendar year on Form 1098-T, Tuition Statement.
Announcement 2016-42 provides relief from penalties under Section 6721 and 6722 to 2017 Forms 1098-T. The IRS will not impose penalties on eligible education institutions that report the aggregate amount billed (instead of amount received) for qualified tuition and related expenses on 2017 Form 1098-T.
Tax Exempt Bonds Webinars
First-time issuers of tax-advantaged bonds should watch TEB’s three-part webinar series on how to maintain the tax-advantaged status of your bonds.
- Part I Introductory Module
- Part II Private Business Use Module
- Part III Arbitrage Module
Watch this webinar to learn about TEB’s tax-advantaged bonds examination process.
- The Tax Exempt Bonds Examination Process
TEB’s three-part webinar series on conduit issuers offers a basic overview of tax-advantaged debt obligations.
- Part 1: Conduit Issuers for Tax-exempt Financings - Overview
- Part 2: Conduit Issuer Responsibilities
- Part 3: Conduit Issuer Policy and Procedural Considerations
Additional TEB webinars are available at IRSvideos.gov.