December 14, 2017
Dear Members of the Authority:
Annual Appointment of the Executive Director
Since 2009 and pursuant to Illinois law, the Authority has considered the appointment of its Executive Director at its December meeting. With respect to this matter, the Authority Act states:
From nominations received from the Governor, the members of the Authority shall appoint an Executive Director who shall be a person knowledgeable in the areas of financial markets and instruments, to hold office for a one-year term. The Executive Director shall be the chief administrative and operational officer of the Authority and shall direct and supervise its administrative affairs and general management and perform such other duties as may be prescribed from time to time by the members and shall receive compensation fixed by the Authority. The Executive Director or any committee of members may carry out such responsibilities of the members as the members by resolution may delegate. 20 ILCS 3501/801-15
Since 2016, matters relating to the selection, evaluation and compensation of the Executive Director have been the jurisdiction of the Authority’s Executive Committee.
I am proud of the impact of our work on behalf of the people of Illinois since last December and a copy of our calendar year 2017 accomplishments will be provided in a separate document. Our successes would not have been possible without the commitment of our Board Members and our staff team. Accordingly, I humbly ask Governor Rauner, Chair Anderberg and all of the members of the Authority for the opportunity to hold office as Authority Executive Director for another one-year term.
Potential Impact of Federal Tax Reform on the Authority and its Borrowers
Sadly, as we look towards calendar year 2018, there is a shadow over the Authority and our fellow residents who benefit from the work of our borrowers such as hospitals, research universities, colleges, schools, cultural institutions, senior living projects, housing developments, family-owned factories and small farmers. This shadow is the potential for federal tax reform to eliminate the Authority’s primary tool, Private Activity Bonds (“PABs” or federally tax-exempt conduit bonds).
A summary of these fast-moving events are in order. On November 2, 2017, the United States House leadership unveiled its federal tax reform legislation, HR 1, the Tax Cuts and Jobs Act (“HR 1”). With respect to the mission and revenues of the Authority, if enacted into federal law, HR 1 as passed by the House terminates, on a going forward basis as of January 1, 2018, the federal tax exemption for interest on any newly issued private activity bonds (“PABs”). (See House-passed HR 1, Subtitle G,Sec. 3601.)
On November 9, 2017, we advised the Authority Board of the impact of the House version of HR 1 with respect to PABs, including the potential negative impact on Authority revenues; the Board also was informed that the Authority has sufficient reserves held independently of the State budget that would allow the Authority to continue operations for a period of time.
On November 16, 2017, the United States House passed HR 1, which included the elimination of the current tax exemption for both PABs and advance refundings.
On November 28, 2017, Congressman Randy Hultgren lead twenty of his House colleagues to write to United States House and Senate leadership to preserve both PABs and advance refunding in the final version of federal tax reform.
On December 2, 2017, the United States Senate passed its version of H.R. 1 that retained current law status for PABs but, like the House version, eliminated advance refundings.
On December 4, 2017, the United States House voted to take federal tax reform legislation to conference with the United States Senate to resolve differences between the House and Senate versions.
On December 6, 2017, the United States Senate voted to take federal tax reform legislation to conference with the United States House to resolve differences between the Senate and House versions.
As of December 6, 2017, PABs constitute approximately $24 billion of the Authority’s $25 billion of outstanding conduit bonds or approximately 96% of the Authority’s outstanding conduit bonds. Under both the House and Senate versions of H.R. 1, the tax exemption for interest on all PABs outstanding on January 1, 2018 would not be impacted. However, in both versions of the bill, if there is a refunding, refinancing or re-issuance for tax purposes in connection with the Authority’s outstanding PABs, the interest on the refunded, refinanced or re-issued debt would be subject to federal income tax. Both versions of HR 1 eliminate advance refunding bonds, a tool that allows PABs (as well other bonds of State and local governments) to save interest costs by refinancing bond debt. See, HR 1, Subtitle G, Sec. 3602. Advance refunding bonds constitute a significant portion of the Authority’s PABs related issuance activity.
Whether a reconciled version of H.R. 1 will be passed by both Chambers and signed by the President before the current effective date of January 1, 2018 is unknown at this time. What we do know is that the Authority will continue to serve the people of Illinois using all available tools in calendar year 2018.
As always, I look forward to continuing to work with you in support of jobs and financing capital expansion projects throughout our state.
Christopher B. Meister