The economic stimulus legislation that passed the House and Senate on Friday, February 13, now headed for certain signature by the President, contains numerous provisions that will affect municipal bonds.

Cities and states will be able to sell significantly more bonds to banks as $30 million QTEOs for governmental or 501(c)(3) projects. Further, banks will be able to invest up to 2 percent of their balance sheets in tax-exempt bonds of any other category. Issuers will be able to access the taxable markets by issuing taxable bonds that give a tax credit to the bondholder or, in some cases, to the bond issuer itself. Tax-credit bonds for school construction and energy projects received special treatment. In "recovery zones," issuers can choose between tax-credit bonds and a new category of tax-exempt private activity bonds.

The bond provisions of the legislation are outlined in the following link.

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