SECTION 2. INTRODUCTION

Section 1402 of Title I of Division B of the American Recovery and Reinvestment Act of 2009, Pub. L. No. 111–5, 123 Stat. 115 (2009) (the “Act”), added new § 7871(f) to the Code. In general, the purpose of new § 7871(f) is to give Indian tribal governments greater flexibility to use tax-exempt bonds to finance economic development projects than is allowable under the existing standard of § 7871(c). The more restrictive standard under § 7871(c) generally limits the use by Indian tribal governments of tax-exempt bonds to the financing of certain activities that constitute essential governmental functions customarily performed by State and local governments with general taxing powers and certain manufacturing facilities. The more flexible standard under new § 7871(f) generally allows Indian tribal governments to use tax-exempt bonds under the new $2 billion volume cap to finance any economic development projects (excluding certain gaming facilities and projects located outside of Indian reservations as provided in § 7871(f)(3)(B)) or other activities for which State or local

governments could use tax-exempt bonds under § 103.

State and local governments generally can use tax-exempt governmental bonds to finance an unspecified broad range of projects and activities so long as (1) not more than 10 percent of the bond proceeds are used for private business use and (2) the debt service on no more than 10 percent of bond proceeds is payable or secured from payments or property used for private business use. In addition, special rules under § 141(b)(3) and § 141(c) further limit the use of tax-exempt governmental bonds in certain circumstances involving disproportionate or unrelated private business use and private loans.

In addition, State and local governments can use tax-exempt qualified private activity bonds to finance certain specified types of projects and activities without regard to the level of private involvement. State and local governments can issue qualified tax-exempt private activity bonds under § 141(e) and related provisions for projects and activities, including the following : (1) airports, (2) docks and wharves, (3) mass commuting facilities, (4) facilities for the furnishing of water, (5) sewage facilities, (6) solid waste disposal facilities, (7) qualified low-income residential rental multifamily housing projects, (8) facilities for the local furnishing of electric energy or gas, (9) local district heating or cooling facilities, (10) qualified hazardous waste facilities, (11) high-speed intercity rail facilities, (12) environmental enhancements of hydroelectric generating facilities, (13) qualified public educational facilities, (14) qualified green buildings and sustainable design projects, (15) qualified highway or surface freight transfer facilities, (16) qualified mortgage bonds or qualified veterans mortgage bonds for certain single-family housing mortgage loans, (17) qualified small issue bonds for certain manufacturing facilities, (18) qualified student loan bonds, (19) qualified redevelopment bonds, and (20) qualified 501(c)(3) bonds for the exempt charitable and educational activities of § 501(c)(3) nonprofit organizations.

Finally, State and local governments can use tax-exempt bonds in “refunding is

sues,” as defined in § 1.150–1(d) of the Income Tax Regulations, to refinance prior bonds, subject to certain restrictions, including a restriction under § 149(d) against not more than one “advance refunding issue,” as defined in § 1.150–1(d)(4), for taxexempt governmental bonds, and a prohibition against any advance refunding issue for tax-exempt qualified private activity bonds.

Thus, subject to the restrictions of § 7871(f)(3)(B), Indian tribal governments can use Tribal Economic Development Bonds to finance a broad range of governmental projects, including hotels, convention centers, or golf courses, as well as projects involving certain qualified private activities, to the same extent and subject to the same limitations imposed on State and local governments. The Tribes can also, subject to the limitations of § 7871(f)(3)(B), use the Bonds for refunding issues, to the same extent as State and local governments.