At about 2:00 a.m. EST on Saturday, December 2, 2017, the only people awake in Washington, D.C. were alcoholics, the unemployable, and angry loners.  Also awake were members of the Unites States Senate (but I repeat myself).  At that early hour, the Senate passed its version of the Tax Cuts and Jobs Act (the “Act”) by a vote of 51 – 49.  Bob Corker of Tennessee was the only one of the 52 Senate Republicans to vote against the Act; none of the 48 Senate Democrats voted for it.

The House of Representatives passed its version of the Act on November 16.  The differences between the versions of the Act as passed by the House and Senate will now be reconciled either by a conference committee comprised of members of the House and Senate or some other form of negotiation between the two chambers of Congress.  Once a final version of the Act has been negotiated, the House and the Senate will vote on this version, assuming it is not identical to either the House or Senate version.  For analysis and speculation regarding the Act’s effect on tax-exempt bonds, hit the jump.

When the House and Senate introduced their respective versions of the Act, we reported on the tax-exempt bond provisions contained in each of those versions (here and here).  The respective tax-exempt bond provisions of the House and Senate versions of the Act did not change from introduction through passage.

Thus, the version of the Act passed by the House would eliminate after December 31, 2017 the issuance of any: (1) tax-exempt private activity bonds (including qualified 501(c)(3) bonds); (2) tax-exempt advance refunding bonds; and (3) tax credit bonds.  The House version of the Act would also eliminate on and after November 2, 2017 (the date on which the Act was introduced in the House) the issuance of any tax-exempt bonds to finance a professional sports stadium or arena.  The Senate version of the Act would eliminate after December 31, 2017 the issuance of tax-exempt advance refunding bonds; otherwise, the Senate version of the Act does not contain any provisions that deal directly with tax-exempt bonds.

Some thoughts on what lay ahead:

• Now that both the House and Senate have passed versions of the Act that eliminate the issuance of tax-exempt advance refunding bonds after December 31, 2017, any version of the Act to which these two chambers agree will in all likelihood retain this elimination. The only thing that remains to be seen is whether a negotiated version of the Act will delay the effective date after which tax-exempt advance refunding bonds cannot be issued or contain some other form of relief from a December 31, 2017 effective date.

• Given that the issuance of tax-exempt advance refunding bonds is imperiled after December 31, 2017, state and local governmental units are rushing to issue such bonds before the end of December. As we previously reported, United States Treasury Securities – State and Local Government Series will very likely not be available for subscription after noon EST on Friday, December 8 (if not sooner).  This will greatly complicate an issuer’s efforts to procure investments to be held in an advance refunding escrow.

• It would not be surprising if a negotiated version of the Act retains tax-exempt private activity bonds. As reported by The Bond Buyer ($), House Ways and Means Committee Chairman Kevin Brady indicated on November 30 that he is open to retaining tax-exempt private activity bonds.  This willingness to re-examine tax-exempt private activity bonds might have been motivated by a November 28 letter to Senate Majority Leader Mitch McConnell, Senate Finance Chairman Orrin Hatch, House Speaker Paul Ryan, and Rep. Brady that was signed by 21 House Republicans and that emphatically called for the retention of tax-exempt private activity bonds.  The House passed its version of the Act by a vote of 227 – 205, so a demand by a group of House Republicans sufficient in number to erode the margin by which the House passed the Act is likely to be taken seriously by House leadership.  Moreover, as discussed in our analysis of the version of the Act as introduced in the Senate, the Senate is bound by the Byrd Rule in this instance (not to mention a razor-thin Republican majority) and is likely to prevail upon the House to accept a version of the Act that closely accords with the version passed by the House.

• There are significant differences between the House and Senate versions of the Act. For example, the House version would eliminate the alternative minimum tax (“AMT”).  This would be a boon for tax-exempt private activity bonds, the interest on which is subject to the AMT (this does not apply to qualified 501(c)(3) bonds, the interest on which is not subject to AMT).  The Senate version of the Act as introduced would also have eliminated the AMT, but the version as passed would not.  This version would instead increase the threshold before AMT is triggered, with this increased threshold returning on January 1, 2026 to the lower amount that applies under current law.  Suffice it to say, negotiating the differences between the two versions of the Act, if the Senate does not succeed in forcing the House to accept the Senate’s version, could prove to be no mean feat.

• Finally, if Doug Jones defeats Roy Moore in the Alabama special Senate election to be held on December 12 and is sworn in before the Senate has voted on the version of the Act that emerges from whatever form of negotiation is undertaken between the House and Senate, the Republicans would hold only a 51 – 49 majority over the Democrats heading into that vote. If Bob Corker is not persuaded to vote for the final version of the Act, the Republicans could in such an instance have no other defections to avoid a failure of the Act in the Senate.

In short, stay tuned – there will be much to follow, with almost nothing certain, as the Act is negotiated between the House and Senate.