Rural Broadband Financial Flexibility Act

II 116TH CONGRESS 1ST SESSION S. 2866 To amend the Internal Revenue Code of 1986 to allow private activity bonds to be used for qualified broadband projects and to provide for tax credit payments to issuers of tax-exempt bonds used to finance broadband infrastructure projects. IN THE SENATE OF THE UNITED STATES NOVEMBER 14, 2019 Mrs. CAPITO (for herself and Ms. HASSAN) introduced the following bill; which was read twice and referred to the Committee on Finance A BILL To amend the Internal Revenue Code of 1986 to allow pri- vate activity bonds to be used for qualified broadband projects and to provide for tax credit payments to issuers of tax-exempt bonds used to finance broadband infra- structure projects. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Rural Broadband Fi- 4 nancial Flexibility Act’’. 5 VerDate Sep 11 2014 00:17 Nov 20, 2019 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S2866.IS S2866 pamtmann on DSKBC07HB2PROD with BILLS 2 •S 2866 IS SEC. 2. PRIVATE ACTIVITY BONDS FOR QUALIFIED 1 BROADBAND PROJECTS. 2 (a) IN GENERAL.—Section 142(a) of the Internal 3 Revenue Code of 1986 is amended by striking ‘‘or’’ at the 4 end of paragraph (14), by striking the period at the end 5 of paragraph (15) and inserting ‘‘, or’’, and by adding at 6 the end the following new paragraph: 7 ‘‘(16) qualified broadband projects.’’. 8 (b) QUALIFIED BROADBAND PROJECTS.—Section 9 142 of such Code is amended by adding at the end the 10 following new subsection: 11 ‘‘(n) QUALIFIED BROADBAND PROJECT.— 12 ‘‘(1) IN GENERAL.—For purposes of subsection 13 (a)(16), the term ‘qualified broadband project’ 14 means any project which— 15 ‘‘(A) is designed solely to provide 16 broadband service to 1 or more areas— 17 ‘‘(i) which are rural areas (as defined 18 in section 343(a)(13) of the Consolidated 19 Farm and Rural Development Act (7 20 U.S.C. 1991(a)(13) without regard to sub- 21 paragraph (B) or (C) thereof), and 22 ‘‘(ii) in which more than 50 percent of 23 residential households do not have access 24 to fixed, terrestrial broadband service 25 which delivers at least 10 megabits per 26 VerDate Sep 11 2014 00:17 Nov 20, 2019 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S2866.IS S2866 pamtmann on DSKBC07HB2PROD with BILLS 3 •S 2866 IS second downstream and at least 1 megabit 1 service upstream, and 2 ‘‘(B) results in gigabit capable Internet ac- 3 cess to residential or commercial locations but 4 only if at least 90 percent of the residential or 5 commercial locations provided such access 6 under the project are locations where, before 7 the project, a broadband service provider— 8 ‘‘(i) did not provide service, or 9 ‘‘(ii) did not provide service which 10 meets the minimum speed requirements 11 described in subparagraph (A)(ii). 12 ‘‘(2) NOTICE TO BROADBAND PROVIDERS.—A 13 project shall not be treated as a qualified broadband 14 project unless, before the issue date of any issue the 15 proceeds of which are to be used to fund the project, 16 the issuer— 17 ‘‘(A) notifies each broadband service pro- 18 vider providing broadband service in the area 19 within which broadband services are to be pro- 20 vided under the project of the project and its 21 intended scope, 22 ‘‘(B) includes in such notice a request for 23 information from each such provider with re- 24 spect to the provider’s ability to deploy, man- 25 VerDate Sep 11 2014 00:17 Nov 20, 2019 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S2866.IS S2866 pamtmann on DSKBC07HB2PROD with BILLS 4 •S 2866 IS age, and maintain a broadband network capable 1 of providing gigabit capable Internet access to 2 residential or commercial locations, and 3 ‘‘(C) allows each such provider at least 90 4 days to respond to such notice and request.’’. 5 (c) PARTIAL EXCEPTION FROM VOLUME CAP.— 6 (1) IN GENERAL.—Section 146(g) of the Inter- 7 nal Revenue Code of 1986 is amended by striking 8 ‘‘and’’ at the end of paragraph (3), by striking the 9 period at the end of paragraph (4) and inserting ‘‘, 10 and’’, and by inserting immediately after paragraph 11 (4) the following new paragraph: 12 ‘‘(5) 75 percent of any exempt facility bond 13 issued as part of an issue described in paragraph 14 (16) of section 142(a) (relating to qualified 15 broadband projects).’’. 16 (2) GOVERNMENT-OWNED PROJECTS.—The last 17 sentence of section 146(g) of such Code is amended 18 by striking ‘‘Paragraph (4)’’ and inserting ‘‘Para- 19 graphs (4) and (5)’’. 20 (d) EFFECTIVE DATE.—The amendments made by 21 this section shall apply to obligations issued in calendar 22 years beginning after the date of the enactment of this 23 Act. 24 VerDate Sep 11 2014 00:17 Nov 20, 2019 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S2866.IS S2866 pamtmann on DSKBC07HB2PROD with BILLS 5 •S 2866 IS SEC. 3. CREDIT FOR BROADBAND INFRASTRUCTURE 1 BONDS ALLOWED TO ISSUERS. 2 (a) IN GENERAL.—Subchapter B of chapter 65 of the 3 Internal Revenue Code of 1986 is amended by inserting 4 after section 6430 the following new section: 5 ‘‘SEC. 6431. CREDIT FOR BROADBAND INFRASTRUCTURE 6 BONDS ALLOWED TO ISSUER. 7 ‘‘(a) IN GENERAL.—In the case of a broadband infra- 8 structure bond, the issuer of such bond shall be allowed 9 a credit with respect to each interest payment under such 10 bond which shall be payable by the Secretary as provided 11 in subsection (b). 12 ‘‘(b) PAYMENT OF CREDIT.—The Secretary shall pay 13 (contemporaneously with each interest payment date 14 under such bond) to the issuer of such bond (or to any 15 person who makes such interest payments on behalf of the 16 issuer) 35 percent of the interest payable under such bond 17 on such date. 18 ‘‘(c) BROADBAND INFRASTRUCTURE BOND.—For 19 purposes of this section— 20 ‘‘(1) IN GENERAL.—The term ‘broadband infra- 21 structure bond’ means any obligation (other than a 22 private activity bond)— 23 ‘‘(A) the interest on which would (but for 24 this section) be excludable from gross income 25 under section 103, 26 VerDate Sep 11 2014 00:17 Nov 20, 2019 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S2866.IS S2866 pamtmann on DSKBC07HB2PROD with BILLS 6 •S 2866 IS ‘‘(B) which is issued by a qualified issuer, 1 ‘‘(C) which is issued as part of an issue 2 with respect to which— 3 ‘‘(i) the requirements of paragraph 4 (2) are met, 5 ‘‘(ii) all of the property to be financed 6 by the net proceeds of the issue is to be 7 owned by a governmental unit (within the 8 meaning of section 142(b)(1)), and 9 ‘‘(iii) the aggregate face amount of 10 bonds issued pursuant to the issue, when 11 added to the aggregate face amount of 12 broadband infrastructure bonds previously 13 issued by the issuing authority during the 14 calendar year, does not exceed such issuing 15 authority’s allocation of its State’s volume 16 cap under subsection (d) for such year, 17 and 18 ‘‘(D) which the issuer designates (at such 19 time and in such manner as the Secretary may 20 prescribe) as an obligation to which this section 21 applies. 22 ‘‘(2) SPECIAL RULES RELATING TO EXPENDI- 23 TURES.— 24 VerDate Sep 11 2014 00:17 Nov 20, 2019 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S2866.IS S2866 pamtmann on DSKBC07HB2PROD with BILLS 7 •S 2866 IS ‘‘(A) IN GENERAL.—An issue shall be 1 treated as meeting the requirements of this 2 paragraph if, as of the date of issuance, the 3 issuer reasonably expects— 4 ‘‘(i) 100 percent of the available 5 project proceeds to be spent in connection 6 with 1 or more qualified broadband 7 projects within the 3-year period beginning 8 on such date of issuance, and 9 ‘‘(ii) a binding commitment with a 10 third party to spend at least 10 percent of 11 such available project proceeds will be in- 12 curred within the 6-month period begin- 13 ning on such date of issuance. 14 ‘‘(B) FAILURE TO SPEND REQUIRED 15 AMOUNT OF BOND PROCEEDS WITHIN 3 16 YEARS.— 17 ‘‘(i) IN GENERAL.—To the extent that 18 less than 100 percent of the available 19 project proceeds of the issue are expended 20 by the close of the expenditure period, the 21 issuer shall redeem all of the nonqualified 22 bonds within 90 days after the end of such 23 period. For purposes of this paragraph, the 24 amount of the nonqualified bonds required 25 VerDate Sep 11 2014 00:17 Nov 20, 2019 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S2866.IS S2866 pamtmann on DSKBC07HB2PROD with BILLS 8 •S 2866 IS to be redeemed shall be determined in the 1 same manner as under section 142. 2 ‘‘(ii) EXPENDITURE PERIOD.—For 3 purposes of this section, the term ‘expendi- 4 ture period’ means, with respect to any 5 issue, the 3-year period beginning on the 6 date of issuance. Such term shall include 7 any extension of such period under clause 8 (iii). 9 ‘‘(iii) EXTENSION OF PERIOD.—Upon 10 submission of a request prior to the expira- 11 tion of the expenditure period (determined 12 without regard to any extension under this 13 clause), the Secretary may extend such pe- 14 riod if the issuer establishes that the fail- 15 ure to expend the proceeds within the 16 original expenditure period is due to rea- 17 sonable cause and the expenditures in con- 18 nection with 1 or more qualified broadband 19 projects will continue to proceed with due 20 diligence. 21 ‘‘(C) REIMBURSEMENT.—For purposes of 22 this subtitle, available project proceeds of an 23 issue shall be treated as spent in connection 24 with 1 or more qualified broadband projects if 25 VerDate Sep 11 2014 00:17 Nov 20, 2019 Jkt 099200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S2866.IS S2866 pamtmann on DSKBC07HB2PROD with BILLS 9 •S 2866 IS such proceeds are used to reimburse the issuer 1 for amounts paid in connection with such 2 projects after the date that an allocation of a 3 State’s volume cap under subsection (d) has 4 been made with respect to such issue, but only 5 if- 6 ‘‘(i) prior to the payment of the origi- 7 nal expenditure, the issuer declared its in- 8 tent to reimburse such expenditure with 9 the proceeds of such issue, 10 ‘‘(ii) not later than 60 days after pay- 11 ment of the original expenditure, the issuer 12 adopts an official intent to reimburse the 13 original expenditure with such proceeds, 14 and 15 ‘‘(iii) the reimbursement is made not 16 later than 18 months after the date the 17 original expenditure is paid. 18 ‘‘(3) LIMITATION ON ISSUE PRICE.—An obliga- 19 tion shall not be treated as a broadband infrastruc- 20 ture bond if the issue price has more than a de mini- 21 mis amount (determined under rules similar to the 22 rules of section 1273(a)(3)) of premium over the 23 stated principal amount of the obligation. 24 VerDate Sep 11 2014 00:17 Nov 20, 2019 Jkt 099200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S2866.IS S2866 pamtmann on DSKBC07HB2PROD with BILLS 10 •S 2866 IS ‘‘(4) AVAILABLE PROJECT PROCEEDS.—For 1 purposes of this subsection, the term ‘available 2 project proceeds’ means, with respect to any issue, 3 the sum of— 4 ‘‘(A) the excess of— 5 ‘‘(i) the proceeds from the sale of an 6 issue, over 7 ‘‘(ii) the issuance costs financed by 8 the issue (to the extent that such costs do 9 not exceed 2 percent of such proceeds), 10 plus 11 ‘‘(B) the proceeds from any investment of 12 the excess described in subparagraph (A). 13 ‘‘(5) QUALIFIED BROADBAND PROJECT.—For 14 purposes of this subsection, the term ‘qualified 15 broadband project’ has the meaning given such term 16 by section 142(n). 17 ‘‘(d) LIMITATION ON AMOUNT OF BONDS DES- 18 IGNATED.— 19 ‘‘(1) NATIONAL LIMITATION.—There is a na- 20 tional broadband infrastructure bond limitation for 21 each calendar year of $2,500,000,000. 22 ‘‘(2) STATE VOLUME CAP; ALLOCATION.—For 23 purposes of this subsection, the broadband infra- 24 structure bonds volume cap of a State for any cal- 25 VerDate Sep 11 2014 00:17 Nov 20, 2019 Jkt 099200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S2866.IS S2866 pamtmann on DSKBC07HB2PROD with BILLS 11 •S 2866 IS endar year is the portion of the national broadband 1 infrastructure bond limitation under paragraph (1) 2 equal to the sum of— 3 ‘‘(A) $25,000,000, plus 4 ‘‘(B) the amount which bears the same 5 ratio to $1,250,000,000 as the— 6 ‘‘(i) number of individuals in such 7 State who reside in rural areas (as defined 8 in section 343(a)(13) of the Consolidated 9 Farm and Rural Development Act (7 10 U.S.C. 1991(a)(13) without regard to sub- 11 paragraph (B) or (C) thereof), bears to 12 ‘‘(ii) the total number of individuals 13 living in such rural areas in all States. 14 ‘‘(3) ALLOCATION OF VOLUME CAP.— 15 ‘‘(A) IN GENERAL.—For purposes of this 16 section— 17 ‘‘(i) except as provided in subpara- 18 graph (C), 50 percent of the State 19 broadband infrastructure bonds volume cap 20 of a State for any calendar year shall be 21 allocated to qualified issuers that are not 22 agencies of the State in the amount deter- 23 mined under subparagraph (B), and 24 VerDate Sep 11 2014 00:17 Nov 20, 2019 Jkt 099200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S2866.IS S2866 pamtmann on DSKBC07HB2PROD with BILLS 12 •S 2866 IS ‘‘(ii) the remaining 50 percent of such 1 volume cap shall be allocated to qualified 2 issuers in such manner as the State pro- 3 vides. 4 ‘‘(B) AMOUNT OF ALLOCATION.— 5 ‘‘(i) IN GENERAL.—The amount of 6 the State broadband infrastructure bonds 7 volume cap for any calendar year allocated 8 under this subparagraph to any qualified 9 issuer described in subparagraph (A)(i) 10 shall be equal to the amount which bears 11 the same ratio to the amount described in 12 subparagraph (A)(i) for such calendar year 13 as— 14 ‘‘(I) the number of individuals in 15 such State who reside in rural areas 16 (as defined in section 343(a)(13) of 17 the Consolidated Farm and Rural De- 18 velopment Act (7 U.S.C. 1991(a)(13) 19 without regard to subparagraph (B) 20 or (C) thereof) within the jurisdiction 21 of such qualified issuer, bears to 22 ‘‘(II) the total number of individ- 23 uals living in such rural areas in the 24 State. 25 VerDate Sep 11 2014 00:17 Nov 20, 2019 Jkt 099200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S2866.IS S2866 pamtmann on DSKBC07HB2PROD with BILLS 13 •S 2866 IS ‘‘(ii) SPECIAL RULE FOR OVERLAP- 1 PING JURISDICTIONS.—For purposes of 2 clause (i)(I), if an area is within the juris- 3 diction of 2 or more governmental units, 4 such area shall be treated as only within 5 the jurisdiction of the unit having jurisdic- 6 tion over the smallest geographical area 7 unless such unit agrees to surrender all or 8 part of such jurisdiction for such calendar 9 year to the unit with [Text truncated for display. 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