WASHINGTON, DC – U.S. Senators Amy Klobuchar and Al Franken, along with Representatives Collin Peterson, John Kline, Tim Walz, Erik Paulsen, Betty McCollum, Keith Ellison, Rick Nolan, and Tom Emmer, have urged the Treasury Department and the Internal Revenue Service (IRS) to carefully consider the potential impact of a proposed rule that could prevent port authorities and other political subdivisions from issuing tax-exempt bonds, a key financing tool for major projects. A diverse array of entities in Minnesota that currently qualify as political subdivisions, including certain port authorities, housing and redevelopment authorities, and economic development authorities, are currently allowed to sell tax-exempt bonds to fund critical local projects. The proposed IRS rule would change the definition of political subdivision in a way that could exclude certain Minnesota entities and stop them from using tax-exempt financing for major projects. In a letter to the Treasury Department and the IRS, Klobuchar, Franken, and members of the Minnesota congressional delegation called on the agency to ensure that changes to current policy do not harm public bodies that provide vital community services.
“We urge you to consider the concerns raised by a number of Minnesota entities that may be harmed by the Internal Revenue Service’s proposed rule on the definition of political subdivision. While we recognize your concern about certain entities that may be unfairly taking advantage of the current definition of political subdivision for private gain, we believe that it’s critical to ensure that changes to current policy do not harm public bodies that provide vital community services,” the lawmakers wrote. “Unfortunately, if the proposed rule were adopted without change, some of them could lose their status as political subdivisions, threatening the critical public work of these entities. We hope you will closely consider the potential impact of your proposed rule and ensure that it does not limit the ability of public entities in Minnesota from providing important community services.”
The full text of the Minnesota congressional delegation’s letter is below:
Dear Secretary Lew and Commissioner Koskinen:
We urge you to consider the concerns raised by a number of Minnesota entities that may be harmed by the Internal Revenue Service’s (IRS) proposed rule on the definition of political subdivision. While we recognize your concern about certain entities that may be unfairly taking advantage of the current definition of political subdivision for private gain, we believe that it’s critical to ensure that changes to current policy do not harm public bodies that provide vital community services.
Minnesota features a diverse array of entities authorized under state and local law to sell tax-exempt bonds and fund public projects. These entities include port authorities, housing and redevelopment authorities, and others that contribute significantly to our Minnesota community. Many of these entities currently qualify as political subdivisions, which allows them to issue tax-exempt bonds.
We believe these widely respected entities should continue to be able to use tax-exempt bonds to appropriately further their missions. Unfortunately, if the proposed rule were adopted without change, some of them could lose their status as political subdivisions, threatening the critical public work of these entities.
Two aspects of the rule deserve particular scrutiny. First, the proposed rule would only allow an entity to qualify as a political subdivision if it engages in activities with no more than an “incidental private benefit.” If adopted as proposed, some Minnesota entities are concerned that this provision could stop some entities from using tax-exempt financing for widely supported economic development activities.
Second, the proposed rule contains unclear provisions on the level of control elected officials or voters must have of a political subdivision. As a result, a number of Minnesota political subdivisions believe this provision could unfairly bar some transparent, accountable entities from using tax-exempt bonds to support critical local projects.
We hope you will closely consider the potential impact of your proposed rule and ensure that it does not limit the ability of public entities in Minnesota from providing important community services. Thank you for considering these concerns and others expressed in the comment process by Minnesota’s political subdivisions and their community partners.
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