ftp.publicdebt.treas.gov/ftp.publicdebt.treas.gov.zip/ftp.publicdebt.treas.gov/cccmt1.txt

Text File | 1999-04-16 | 56KB | 1,031 lines

LIST OF COMMENTERS
responding to PROPOSED RULMAKING
STATE AND LOCAL GOVERNMENT SERIES SECURITIES
Published July 26, 1996


COMMENTER:

The San Joaquin Hills Transportation Corridor Agency
American Bar Association
Arter Hadden Haynes & Miller
National Association of Bond Lawyers
Sherman & Howard L.L.C.


*     *     *     *     *

COMMENT LETTERS BEGIN HERE

*     *     *     *     *


Comment # 1 -- The San Joaquin Hills Transportation Corridor Agency



August 19, 1996

Mr. Fred Pyatt
Division of Special Investments
Bureau of the Public Debt
Department of the Treasury
200 3rd Street
Parkersburg, WV 26101-0396

Re:    Regulations Governing United States Treasury Certificates of
Indebtedness, Treasury Notes and Treasury Bonds - State and Local
Government Series (SLGs) - Extension of Bond Maturity Limit Beyond
Thirty Years

Ladies and Gentlemen:

Introduction

The San Joaquin Hills Transportation Corridor Agency (the "Agency") is a
political subdivision formed by ten California cities and the County of
Orange to provide toll roads in Southern California.  The Agency is
grateful for the positive and extensive proposed changes in the offering
of SLGs as provided in the proposed rule for SLGs, 31 CFR Part 344, as
published in the Federal Register on July 26, 1996 (the "Proposed
Rule").  The Proposed Rule demonstrates a heightened sensitivity to the
financing needs of state and local governments (including their need to
comply with the Internal Revenue Code).  However, the Proposed Rule does
not address certain needs of the Agency; and, this letter is to request
that either the Proposed Rule be revised to permit the Department of the
Treasury to issue SLGs with a term to maturity in excess of thirty years
or that the Agency be otherwise permitted to purchase such SLGs.

To effectuate its governmental purpose, in 1993 the Agency issued
$1,169,576,848.05 of Toll Road Revenue Bonds (the "Prior Bonds") to
construct a transportation corridor (the "Project").  For cash flow
purposes, certain (but not all) of the Prior Bonds were issued with
maturities in excess of thirty years (the longest Prior Bond matures on
January 1, 2033); certain of the Prior Bond maturities (including
certain of those Prior Bonds with maturities in excess of thirty years)
are noncallable.  In the judgment of the Agency and its financial
consultants, this structure provided the least expensive financing of
the Project as of the date of structuring and pricing of the Prior
Bonds.  Noncallable tax-exempt bonds with maturities in excess of thirty
years have been utilized for other revenue bond projects, such as public
power and airport projects.

The Project is now nearing completion and the Agency anticipates advance
refunding the Prior Bonds in the near future to appropriately tailor
cashflows to meet the current needs of the Agency and to possibly
achieve savings.  Such a refunding transaction would include the
purchase of securities to fund a defeasance escrow for the Prior Bonds,
including those Prior Bonds with maturities in excess of 30 years.

The Agency has carefully examined possible defeasance securities for a
Prior Bond escrow.  The Prior Bond documents generally provide that
defeasance securities only include direct obligations of the United
States of America.  Unless this request is granted, the Agency does not
expect that there will be available defeasance securities with terms to
maturity in excess of thirty years to fund its escrow.  Because of this
fact, if the request described herein is not granted, the Agency expects
that it will have to purchase defeasance securities which mature several
years prior to the last payment date in the Prior Bond escrow.  For
defeasance purposes, the Agency cannot assume that, after the defeasance
securities mature, it will purchase additional securities that yield
above 0.00%.  Consequently, the Agency will have to invest more monies
to fund the Prior Bond defeasance requirements to offset the "lost"
earnings it could not achieve because current defeasance securities,
such as SLGs, have a term to maturity

not greater than thirty years.  Based on current market conditions, the
Agency anticipates spending as much as an additional fifty million
dollars to fund its escrow because of this fact.  This additional cost
is expected to be funded by the sales proceeds of an additional fifty
million principal amount of tax-exempt refunding bonds.

The Agency has carefully analyzed all currently available escrow
structures to avoid the above-described result.  Purchasing zero coupon
SLGs to "blend down" its escrow (after the currently available
defeasance securities mature) is not a practical alternative given the
Prior Bond yield and the current market rates for SLGs (i.e., the
current market rates for SLGs do not necessitate the Agency "blending
down" its escrow for the period of time between when currently available
defeasance securities mature and the end of the escrow).  The Agency has
also determined that it is impractical to assume that "float contracts"
or obligations of the Resolution Funding Corporation would be available
to fund the Agency's escrow because of its term to maturity.  The Agency
has also examined purchasing "specially tailored" agency securities.
However, those securities are not defeasance securities and the Agency
has been advised by bond counsel that those securities raise issues
regarding "market pricing" under Section 148 o

f the Internal Revenue Code.

Request

The Agency believes that the only practical alternative to fund a cost
effective defeasance escrow for the Prior Bonds is to utilize SLGs with
maturities in excess of thirty years, and the Agency hereby requests
that those securities be made available.  The maximum maturity necessary
for the Agency's present needs would not be in excess of thirty-six and
a half years.

If it is difficult to price SLGs with a maturity in excess of thirty
years, the Agency would agree to accept the same pricing (e.g., interest
rate) for those maturities as a thirty year SLG.  If the above-described
SLGs are offered, the Agency would expect to save as much as one hundred
and fifty million dollars of additional debt service on the expected
additional fifty million of tax-exempt bonds it would be forced to issue
to fund the additional escrow cost described above.  If the Agency's
request is granted, all parties will benefit:  the federal government
(which borrows Agency's money at rates less than the then prevailing
market rate and also benefits from less tax-exempt bonds being issued),
the Agency (which will have more funds available to apply for public
purposes), and the public (which ultimately pays for the Agency's
costs).  The Agency notes that its request is similar in concept to a
change in the Proposed Rule permitting zero coupon SLGs with maturities
of less than thirty days.

Every penny counts in California.  Please help us in fulfilling our
governmental purpose at the least cost to the public by granting our
request and permitting the issuance of SLGs with a term to maturity in
excess of thirty years.  If you have any questions, please contact our
bond counsel, Carol L. Lew of Stradling, Yocca, Carlson & Rauth at (714)
725-4237 or the undersigned at [phone].

Best regards,

Colleen Clark
Director of Finance

cc:    Ms. Linda Schakel; Department of the Treasury
    Carol Lew, Esq., Stradling Yocca; Carlson & Rauth
    W. D. Kreutzen, TCA

________________________________________________________________________
_______

Comment # 2 -- American Bar Association



COMMENTS ON PROPOSED RULEMAKING:  REGULATIONS GOVERNING UNITED STATES
TREASURY CERTIFICATES OF INDEBTEDNESS, TREASURY NOTES, AND TREASURY
BONDS -- STATE AND LOCAL GOVERNMENT SERIES ("SLGS"), 31 CFR PART 344
(DEPARTMENT OF THE TREASURY CIRCULAR, PUBLIC DEBT SERIES NO. 3-72)


The following comments and recommendations express the individual views
of the members of the Section of Taxation who prepared them and do not
represent the position of the American Bar Association or the Section of
Taxation.


These comments and recommendations were prepared by members of the
Committee on Tax-Exempt Financing.  Primary responsibility was taken by
Valerie Pearsall Roberts, chair of the Task Force on Refunding Bonds.
Coordinating responsibility was taken by Linda L. D'Onofrio, Chair of
the Committee.  Comments were submitted by David L. Miller.  These
comments were reviewed by William M. Loafman of the Section's Committee
on Government Submissions, and by George C. Howell, III, the Council
Director for the Committee on Tax-Exempt Financing.
Although many of the members of the Section of Taxation who participated
in preparing these comments and recommendations have clients who would
be affected by the federal tax principles addressed, or have advised
clients on the application of such principles, no such member (or the
firm or organization to which such member belongs) has been engaged by a
client to make a governmental submission with respect to or otherwise
influence the development or outcome of, the specific subject matter of
these comments.


Contact Persons:        Valerie Pearsall Roberts        Linda L.
D'Onofrio
            [phone]            [phone]
Dated:            August 26, 1996


I.    EXECUTIVE SUMMARY
The Members of the American Bar Association Tax Section Committee on
Tax-Exempt Financing (the "Members") applaud the Department of the
Treasury ("Treasury") for its Proposed Rule:  Regulations Governing
United States Treasury Certificates of Indebtedness, Treasury Notes, and
Treasury Bonds -- State and Local Government Series ("SLGS"), 31 CFR
PART 344 (Department of the Treasury Circular, Public Debt Series No. 3-
72) (the "Proposed Regulations").  We take this opportunity to comment
on the contents of the Proposed Regulations.
As an initial matter, we heartily commend Department of the Treasury
("Treasury") for its thoughtful and responsive approach to solving many
of the problems existing under the current SLGS regulations.  We support
each and every one of the changes contained in the Proposed Regulations
: they will make the SLGS program far more responsive to issuers' needs
and will likely result in a dramatic increase in the use of SLGS.
II.    COMMENTS ON SPECIFIC PROPOSED CHANGES AND ON ISSUES TO BE
RECONSIDERED AT A LATER DATE.
We applaud Treasury and the Bureau of Public Debt (the "Bureau") for
their willingness to consider comments made by the Members in their May
30, 1996 report (the "May 30, 1996 Comments") on the Advance Notice of
Proposed Rulemaking:  Regulations Governing United States Treasury
Certificates of Indebtedness, Treasury Notes, and Treasury Bonds --
State and Local Government Series, 31 CFR Part 344 (Department of the
Treasury Circular, Public Debt Series No. 3-72) (the "Notice").
In the May 30, 1996 Comments, the Members requested several
modifications in addition to the proposed changes described in the
Notice.  In response to those comments, the preamble to the Proposed
Regulations provides that the Treasury and the Bureau will consider (at
a later date) regulations which would permit (1) issuance of deep
discount SLGS bearing no current interest (similar to stripped Treasury
securities, or STRIPs); (2) direct downloading of SLGS subscriptions
enabling issuers to avoid the tedious procedure of typing onto
carbonless forms all information pertaining to each SLGS including
interest rate, issue date, first interest payment date, final maturity
date and principal amount; and (3) the transferability of SLGS.  We
commend Treasury and the Bureau for their willingness to consider
regulations addressing those requests at a later date.
In addition, we commend Treasury and the Bureau for clarifying that (1)
the arbitrage and rebate regulations of the Treasury Regulations
Sections are more appropriate authority than the SLGS regulations for
enforcing yield restriction and rebate rules, and (2) the state or local
issuer (rather than the trustee bank or the conduit borrower) is the
owner of the SLGS, so that transferability of SLGS is generally
permitted between various bond issues of that state or local issuer.
In this report, we specifically comment on (1) the apparent elimination
of the "mailbox rule"; (2) Treasury's right to refuse to issue SLGS or
to revoke outstanding subscriptions of SLGS; and (3) technical points
such as clarification of the use of fax machines to file SLGS
subscriptions.
A.    Elimination of the Mailbox Rule.
Under both the current and Proposed Regulations, the maximum interest
rates for SLGS are determined daily.  Under the current regulations, the
day's maximum interest rates can be "locked in" by filing a SLGS
subscription on that date.  Issuers have relied almost invariably on the
"mailbox rule" especially when pricing is completed after normal
business hours.  Under that rule, a subscription sent via certified or
registered mail is deemed filed on the date postmarked regardless of
when received.  Many issuers send an initial subscription by registered
mail to lock in the day's interest rate and a duplicate via fax or
overnight carrier to alert the Bureau, as soon as possible, of the
principal amount of SLGS requested.  The Proposed Regulations decrease
the time required between the initial subscription for SLGS and the
issue date from 15 days to 5 days (or 7 days depending on the principal
amount of the subscription), and would lock in the maximum interest
rates on the date the initial subscription is received

 by the Bureau, thus effectively eliminating the mailbox rule.
The current SLGS regulations, section 344.2(b) for time deposit
securities provides in pertinent part:
"The applicable rate table for any subscription is the one in effect on
the date the initial subscription is telecopied, if transmitted by
facsimile equipment, postmarked, if mailed or carrier date stamped, if
the initial subscription is delivered by another carrier."
The Proposed Regulations provide:
"The applicable rate table for any subscription is the one in effect on
the date the initial subscription is received at Public Debt."
At the recent ABA annual meeting, a representative of the Treasury
Department explained that the reason for this change is that the new
shorter filing periods (5 or 7 days, as the case may be) made this
modification necessary due to the processing time required by the
Bureau.
We believe that there are two distinct functions of an initial SLGS
subscription:  (1) to lock in the interest rate applicable to the day
the subscription is filed, and (2) to advise the Bureau as to the
principal amount of SLGS to be issued on any date.  Although we
sympathize with the Bureau's processing needs, we believe that an
issuer's ability to lock in a specific day's interest rate is crucial
for a refunding or escrow restructuring.  Absent the ability to lock in
the SLGS rate on the pricing date many issuers will choose to purchase
open market securities to lock in the required yield.
We strongly advocate retention of the mailbox rule for purposes of
locking in the interest rate.  In the event a fax is not received by the
Bureau prior to midnight on the pricing date, the issuer's proof of
certified or registered mailing of the subscription should serve to lock
in the rate.  The ability to rely on the mailbox rule is an issue of
overwhelming importance.  Locking in the interest rates available on the
day of pricing cannot be made dependent upon the Bureau's receipt of the
initial subscription on that date.  Nor would pricing 8 or more days
prior to the issue date compensate for inability to rely on the mailbox
rule since the essence of the problem is that an issuer cannot guarantee
that the Bureau will receive the subscription on the same day it is
submitted.  Furthermore, issuers surveyed have encountered great
difficulty in confirming that subscriptions have been received by the
Bureau.  As noted in section C, hereof, even a confirmation generated by
the sender's fax machine is no guarante

e of receipt by the Bureau.
In addition, elimination of the mailbox rule will be a burden on the
smaller trustees, financial advisors and others who may not have full
access to fax machines but, who, nevertheless, want to lock in a given
maximum interest rate.  We are also concerned that the rule puts too
much reliance on a particular technology and query what happens if there
is a power outage in Parkersburg or if so many issuers are attempting to
fax SLGS subscriptions to Parkersburg simultaneously that a fax is not
received by the Bureau on a timely basis.  Retaining the mailbox rule
keeps a safety valve in the process for such failures in the fax
technology.  Accordingly, we strongly urge retention of the mailbox rule
at least for the purpose of locking in the pricing day's interest rates.
The mailbox rule should be retained as an option for issuers which do
not choose to use the "actual receipt" rule.
Our proposal would require a two step initial filing by issuers wishing
to rely on the mailbox rule.  To accommodate the Bureau's need for 7
days (or 5 days) notice, the regulations should permit the issuer to
lock in the maximum interest rate by mailing the initial subscription,
in reliance on the mailbox rule, so long as a copy of the initial
subscription form (clearly marked to indicate it is a duplicate of the
mailed subscription) together with proof of mailing is separately sent
by means reasonably designed to arrive at the Bureau 7 days (or 5 days)
prior to the issue date (e.g., fax, federal express, overnight mail or
hand delivery).  We believe the optional two step filing procedure for
issuers wishing to rely on the mailbox rule should provide the Bureau
with sufficient advance notice.  If there is a need for greater
assurance of actual receipt, we would urge the Bureau to establish
reasonable procedures to confirm its receipt of subscriptions.
B.    Treasury's Right to Refuse to Issue SLGS and to Revoke Outstanding
Subscriptions.
The current regulations provide certain "reservations" at Section
344.1(f) as follows:
"The Secretary of the Treasury reserves the right...
(1) To reject any application for the purchase of securities under this
offering;
(2) To refuse to issue any such securities in any case or any class(es)
of cases; and (3) To revoke the issuance of any security, and to declare
the subscriber ineligible thereafter to subscribe for any securities
under this offering, if any security is issued on the basis of an
improper certification or other misrepresentation by the subscriber,
other than as a result of an inadvertent error, if the Secretary deems
such action to be in the public interest."
The Proposed Regulations at Section 344.1(f) provide:
The Secretary of the Treasury reserves the right...
(1) To reject any application for the purchase of securities under this
offering;
(2) To refuse to issue any such securities in any case or any class(es)
of cases; and (3) To revoke the issuance of any security, and to declare
the subscriber ineligible thereafter to subscribe for any securities
under this offering, if:
(i) any security is issued on the basis of an improper certification or
other misrepresentation by the subscriber (other than as a result of an
inadvertent error),
(ii) the issuance of any security is in conjunction with a violation of
the tax regulations as determined by the Internal Revenue Service, or
(iii) the Secretary deems such action to be in the public interest.
(This limited right to revoke for misrepresentations and improper
certifications was first made part of the SLGS regulations in 1986.
Prior to that time, the Secretary could only refuse to issue the
securities.)

The Proposed Regulations modify the rule of Section 344.1(f)(3),
primarily in the addition of subsection 3(ii) (reserving the Treasury's
right to refuse issuance of or to revoke issued SLGS if the issuance of
any security is in conjunction with a violation of the tax regulations
as determined by the Internal Revenue Service ("IRS")), and the
independence of subsection 3(iii) reserving the Treasury's right to
refuse issuance of or to revoke issued SLGS if the Secretary deems such
action to be in the public interest regardless of whether there has been
a misrepresentation or violation of the tax regulations.  Currently, the
Secretary can refuse issuance of or can revoke issuance of SLGS only if
there is a misrepresentation or improper certification and the Secretary
deems revocation to be in the public interest.  This is an
understandable standard that bond counsel have found acceptable.  The
new language adds two very ambiguous categories that may lead to a
refusal to issue or to a revocation.  It is unclear wh

ether an IRS determination of taxability of an advance refunding
constitutes a "violation" that will also lead to revocation of SLG
investments.  Even more nebulous is the standard for the open-ended
refusal/revocation of subsection 3(iii) if the Secretary deems such
action to be in the public interest.
The importance of this issue in the context of advance refundings cannot
be overemphasized.  "Defeasance" is part of the contract between the
holder of the refunded bond and the issuer.  Typically the defeasance
clause of the contract requires the issuer to post non-callable U.S.
Treasury securities with unconditional cashflow sufficient to pay debt
service (and call premium) on the refunded bonds.  Non-callable open
market securities have no possibility of revocation after issuance.  It
should be the intent of the SLGS program to offer securities of the same
quality.
If there is even a hypothetical possibility that the issuer will have
its SLGS revoked by the Secretary under an ambiguous standard, bond
counsel and trustees will be unable to conclude that interest bearing
SLGS constitute defeasance securities.  We are concerned that
establishing a SLGS program that creates more uncertainty as to
defeasance with SLGS (than would exist with a portfolio of open market
securities) seriously undermines Treasury's and the Bureau's goal of
providing a SLGS program which is responsive to issuers' needs and which
will be widely used for the investment of bond proceeds, especially for
advance refunding escrows.  In its present form, the Proposed Regulation
creates a significant incentive for issuers to design advance refunding
escrows using open market Treasuries rather than SLGS.  Accordingly, we
recommend that the Proposed Regulations be modified to reinstate the
existing limited language on refusal to issue and on revocation.
Perhaps the changes to the revocation provisions were made to conform
those provisions with the Bureau's decision to eliminate almost all
"certifications."  It would be far better to have some form of general
certification, with revocation limited to improper certifications, than
to eliminate the two-pronged test required by the current regulations
and permit refusal to issue or revocation based on a nebulous standard.
As an alternative to the refusal to issue or the revocation of
previously issued SLGS, Treasury might consider imposing a monetary
penalty or a bar to the issuer's future purchase of SLGS for a specified
time period.
C.    Technical Comments on the Transmission of SLGS Subscriptions.
The Proposed Regulations Section 344.3(b)(1) specifically permit
subscriptions to be transmitted to the Bureau by fax, carrier service or
U.S. Postal Service.  A faxed subscription must be followed by
submission of the original subscription received by the Bureau no later
than the issue date.  At the ABA meeting on August 2, 1996, a Treasury
Official assured us that the Bureau's fax machines at Parkersburg
operate 24 hours per day.  Nonetheless, we believe there should be some
clarification in the Proposed Regulations as to the rules to be applied
to receipt of faxed subscriptions, since it is likely that less than
100% of faxes transmitted will be timely received at Parkersburg due to:
(1) transmission problems; (2) fax machine congestion; (3) mechanical
problems; and (4) other unforeseen problems.

For example, an issuer may fax an initial subscription and the issuer's
fax machine may indicate receipt of that subscription at Parkersburg.
However, if there was a paper jam in the receiving machine, the Bureau
would not have received the subscription, and the issuer might not be
entitled to rely on that day's SLGS interest rates.  Since certainty in
locking in the rates is crucial in a refunding or escrow restructuring,
we request additional clarification of the rules applicable to receipt
of subscriptions.

________________________________________________________________________
_

Comment # 3 - Arter Hadden Haynes & Miller



                                               August 26, 1996

    Comments of David L. Miller on proposed SLGs Regulations

    I am an attorney specializing in advance refunding bond
transactions.  I represent many issuers, investment bankers and
financial advisors in such transactions.  In such transactions, my firm
typically is responsible for filing SLGs for these clients.   Over the
last 22 years we have been involved in more than a thousand SLG filings
for issuers in every state in the Union.

    Congratulations on a job well done.  The new regulations give much
needed flexibility to issuers.  It is especially useful that the new
rules have repealed the all-or-none rule, making it possible for issuers
to use the SLGs program in conjunction with a portfolio of open markets,
and the opening of the program to the investment of gross proceeds that
are subject only to rebate.

     The new regulations make a serious error in expanding the
authority of the Secretary to revoke subscriptions.   To comply with the
underlying bond documents, municipal advance refundings must provide an
escrow of Treasury securities that are non-callable, irrevocable and
which provide absolute assurance to the bondholder that the principal
and interest on the portfolio will be paid.  Non-callable open market
Treasury securities provide that assurance.   SLGs must provide similar
assurance.  I understand that both NABL and the Committee on Tax-exempt
Financing of the Tax Section of the ABA have furnished comments in this
regard.  The comments both identify the same problem, but they differ
slightly in their recommended solution (My comments are based on draft
versions of their comments. I have not seen their final versions).

    NABL would fix the problem by having a clearer standard for
revocation stated in the text of the regulation. (for example, by
revising Section 344.1(f)(3) to read "To revoke the issuance of any
security, and to declare the subscriber ineligible thereafter to
subscribe for any securities under this offering if the subscription is
inconsistent with the requirements of this regulation and the Secretary
deems such action to be in the public interest."  The NABL proposal
works only if NABLs other requested clarification as to the types of
funds that may be invested in SLGs.  This would require change to
Section 344.0 to reference a clear standard such as a possible new
344.0(d) (and renumber current (d) to (e)) "a government body may
purchase securities under this offering with any amounts which may
assist the government body in complying with applicable provisions of
the Internal Revenue Code relating to the tax-exemption of its debt."

    The ABA approach to the problem would be to re-instate the
previous language of Section 344.1(f)(3) to read "To revoke the issuance
of any security, and to declare the subscriber ineligible thereafter to
subscribe for any securities under this offering if the security is
issued on the basis of an improper certification or other
misrepresentation by the subscriber, other than the result of
inadvertent error, if the Secretary deems such action to be in the
public interest."   The ABA approach would also require the re-
institution of one "certification" of the issuer that the amounts
invested consist solely of "gross proceeds" of the issue.  The form of
the initial subscription in Section 344.3(b)would have to be modified to
contain that certification.

    Either the NABL approach or the ABA approach would be effective.
The ABA approach may create a greater degree of certainty that the NABL
approach because it specifically includes a reference to "inadvertent
error,"  and the concept of "gross proceeds" is clearly understood by
the bond community.

    I also support the ABA suggestion that the elimination of the
mailbox rule puts too great a reliance on the fax technology.  The
proposed regulations have properly identified a need for the Bureau of
Public Debt to receive subscriptions at least five-to-seven days before
purchase.  This is a legitimate concern of the Bureau.  However, from
the issuer's perspective, it is also important to know that the interest
rate table in effect for the day the subscription is prepared applies to
the subscription.  Issuers should be able to use mail as alternative to
fax to fix the interest rate table, in circumstances where they are
unable, for any reason,  to get a fax through to Parkersburg.

    Fax technology has some safeguards to determine if a transmission
has been received.  Typically, a sending fax machine gets an error
message if the receiving machine does not pick up or if the line gets
disconnected prior to completion of the transmission.  However, there is
no way for the sender to tell if the document received into the digital
memory of the receiving machine is actually printed by that machine or
is not otherwise destroyed before being seen.  On a number of occasions
we have found in our own mail room that fax transmissions get "lost,"
primarily because the printer jams or loses memory for some reason.
The regulations should deal with the possibility of such a failure, or
of a general inability to get through to Parkersburg on the fax line.
The solution to this process is for the Bureau to have an affirmative
confirmation procedure for fax subscriptions, with the fall-back of a
mail filing if no confirmation of the fax is available.  The best
procedure would be for the Bureau to automati

cally fax or phone a confirmation that a subscription has been received,
but another possible approach would be for the regulations to state
specifically that a subscriber can telephone a specific phone number to
receive oral confirmation of a fax filing.


    I also encourage the Bureau to put the daily SLGs interest rate
table on the World Wide Web.  The Bureau is doing an excellent job of
utilizing the web to make its regulations and comments thereon available
to internet users.  The Web would be an easier and more cost-effective
way for investment bankers, issuers and trustees to get current SLG
rates.  In this regard I would also note that the proposed change to
only a 5 basis point rate differential will make it more likely that the
Bureau will on some occasion actually change the table in the middle of
the day due to sharp market movements.   Having the rates available on
the Web would greatly facilitate the distribution of such rate tables.

                                            Respectfully submitted,

                                             David L. Miller
                                             Arter Hadden Haynes and
Miller
                                             1801 K St. NW
                                             Washington, DC 20006
                                             [e-mail]
________________________________________________________________________
____

Comment #4 - National Association of Bond Lawyers



    NABL COMMENTS ON PROPOSED SLGS REGULATIONS

    August 26, 1996

Division of Special Investments
Bureau of the Public Debt, Department of the Treasury
200 3rd Street
P.O.  Box 396
Parkersburg, WV 26101-0396

Ladies and Gentlemen:

    On July 26, 1996, the Department of the Treasury published in the
Federal Register proposed changes to the current regulations (the
"Proposed Regulations") governing United States Treasury Certificates of
Indebtedness, Notes and Bonds of the State and Local Government Series
("SLGS").  The Proposed Regulations invite public comments to be
received by the Bureau of the Public Debt on or before August 26, 1996.
This submission represents the comments prepared by the Arbitrage and
Rebate Committee of the National Association of Bond Lawyers ("NABL").

    In short, the purpose of this letter is to express the gratitude
of NABL to those individuals at the Treasury and Bureau of the Public
Debt for the considerable effort expended in making the SLGS program
more attractive and flexible for state and local governments and to
encourage the Treasury to adopt the Proposed Regulations substantially
in their current form (with several technical modifications as noted
below) expeditiously.  With one exception as noted below, the Proposed
Regulations represent the development of a program which should prove to
be both workable from the perspective of issuers of tax-exempt
obligations and consistent with federal policy objectives.

    NABL was incorporated as an Illinois nonprofit corporation on
February 5, 1979 for the purposes of educating its members and others in
the law relating to state and municipal bonds and other obligations,
providing a forum for the exchange of ideas as to law and practice,
improving the state of the art in the field, providing advice and
comment at the federal, state and local levels with respect to
legislation, regulations, rulings and other actions, or proposals
therefor, affecting state and municipal obligations, and providing
advice and comment with regard to state and municipal obligations in
proceedings before courts and administrative bodies through briefs and
memoranda as a friend of the court or agency.  NABL has over 2,900
members.

    These comments were prepared in accordance with NABL's purposes.
The comment letter was drafted by David A. Caprera.  The chair of the
Arbitrage and Rebate Committee was David A. Walton.  Members who
participated in the preparation of these comments included Robert W.
Buck, David J. Cholst, Arthur M. Miller, and David L. Miller.  While not
all members of the subcommittee concurred in each of these comments, the
comments represent the consensus of the participants.  We would welcome
the opportunity to discuss the comments set forth below with
representatives of the Treasury and the Bureau of the Public Debt and to
attempt to answer any questions that these comments may raise.

    While the subcommittee believes that the Proposed Regulations, if
adopted in their entirety, would result in an improved SLGS program,
there is one significant change and a couple of minor technical
modifications which we believe would serve the joint interests of all
parties affected.  The subcommittee is concerned that if the Proposed
Regulations are adopted without addressing the problem noted below
regarding the Secretary of the Treasury's right to revoke previously
issued SLGS, the program might prove unsuitable for certain advance
refunding and other defeasance escrows.  However, in no way do we wish
to suggest by the comments set out below that we are disappointed or
dissatisfied with the other changes being proposed.  Quite to the
contrary, the subcommittee appreciates the comprehensive improvements to
the SLGS program made in the Proposed Regulations.

    Our primary concern and the source of our proposed modification
derives from the change to the current regulations which would greatly
expand the authority of the Secretary of the Treasury to revoke the
issuance of SLGS.  Section 344.1(f) of the Proposed Regulations reserves
the right of the Secretary of the Treasury to revoke the issuance of any
SLGS if its issuance "is in conjunction with a violation of the tax
regulations, as determined by the Internal Revenue Service," or "if the
Secretary deems such action to be in the public interest."  This power
to revoke is much more expansive and general than is that contained in
the current regulations which provides for revocation as a result of "an
improper certification or other misrepresentation," "other than as a
result of an inadvertent error," and "if the Secretary deems such action
to be in the public interest."

    The Proposed Regulations eliminate most certifications required by
the current regulations.  While we concur with the decision to eliminate
these certifications as unnecessary, it must be recognized that the
certification requirement creates substantive rules that must be met for
the valid issuance of SLGS.  (Additionally, the certification
requirement may provide the United States with certain criminal
penalties for persons who attempt to subscribe in violation of the
regulations.)  In the case that the SLGS certification is untrue (i.e.,
the substantive rules for the issuance of SLGS are violated), under
current law, issued SLGS can be revoked and SLGS applications
dishonored.  Under current law, the Bureau of the Public Debt could
choose not to revoke such SLGS or dishonor such subscription
notwithstanding a finding that the SLGS subscription contained an untrue
certification.  The Bureau of the Public Debt might determine that the
SLGS certification is false, but it is in the interest of the United
States

 to leave the SLGS outstanding because SLGS might have a below market
interest rate.  If a payment on issued SLGS is ever missed because of a
putative revocation, the SLGS owner would have the right, under current
law, to challenge the revocation in the Court of Claims by suing on the
Bond, Note or Certificate of Indebtedness.  If the SLGS owner proved to
the satisfaction of the Court of Claims (presumably by a preponderance
of the evidence) that the SLGS certifications were not false, then the
SLGS would not be revoked and any nonpayment would be a default.

    The new language adds two ambiguous categories that may lead to
revocation.  Does an Internal Revenue Service determination of
taxability of an obligation constitute a "violation" that will also lead
to revocation of SLGS investments?  What is the standard for the even
more open-ended "the Secretary deems such action to be in the pubic
interest" when not modified by the other requirements as a result of the
use of the conjunctive "or" in place of the current word "and"?

    The importance of this issue, particularly in the context of
advance refundings, cannot be overemphasized.  "Defeasance" is part of
the contract between the holder of the refunded bond and the issuer.
Typically, the defeasance clause of the contract requires the issuer to
post non-callable U.S. Treasury securities with unconditional cashflow
sufficient to pay off the refunded bonds.  When bonds are defeased,
typically all collateral securing the bonds (other than the Treasury
securities) is released and the issuer's obligation to pay principal and
interest is extinguished.  Thus, open market securities used to defease
bonds must be non-callable obligations with no realistic possibility
that they will default or be revoked after issuance.  The SLGS program
must offer securities of this same quality.

    If there is even a hypothetical possibility that the issuer will
have its SLGS revoked by the Secretary under an ambiguous standard, bond
counsel and trustees may not be able to conclude that interest bearing
SLGS qualify for defeasances.  Setting up a SLGS program that creates
more uncertainty as to defeasance with SLGS than would exist with a
portfolio of open market securities blended down with zero rate SLGS
will undercut the important improvements otherwise provided for in the
Proposed Regulations.

    Accordingly, we request that the Treasury limit the authority of
the Secretary to revoke the issuance of SLGS only to circumstances where
the issuance of such SLGS is inconsistent with the requirements of the
Proposed Regulations and the Secretary determines that revocation as a
result of such inconsistency is in the public interest.

    Our first technical modification relates to the types of funds
that may be invested in SLGS under the Proposed Regulations.  As noted,
the Proposed Regulations eliminate most of the certifications of the
subscriber which have been required to be contained with the final
subscription for SLGS.  One of these certifications is that "the total
investment consists only of proceeds (including amounts treated as
proceeds) of a tax-exempt bond issue which are subject to yield
restrictions under section 141-150 of the Internal Revenue Code during
the entire period of investment."  The elimination of the above-quoted
language creates an ambiguity as to the amounts which will be eligible
for SLGS investment.

    The Proposed Regulations make reference to several different and
potentially contradictory descriptions of the amounts which may be
invested in SLGS.  The Summary describes "proceeds (or amounts treated
as proceeds) which are subject to yield restrictions or arbitrage rebate
requirements."  In describing "Proposal No. 6," the Proposed Regulations
make reference first to "funds subject to rebate as well as yield
restrictions" and then to "all gross proceeds."  Finally, in section
344.0(a), the Proposed Regulations refer to "investments which allow
[issuers of tax-exempt securities] to comply with yield restrictions and
arbitrage rebate provisions."

    An ambiguity arises because the terms used to describe amounts
which may be invested in SLGS may have conflicting meanings under Income
Tax Regulations governing tax-exempt obligations and because the
certification of subscribers clarifying what amounts are to be invested
would not be required.  Section 1.148-1(b) of the Income Tax Regulations
treats "proceeds" as included within a larger class of "gross proceeds."
There are amounts the investment of which may need to be monitored and
restricted in order to ensure compliance with the tax-exempt bond
requirements of the Internal Revenue Code even though they may be
neither "proceeds" nor "gross proceeds" (e.g., funds such as
depreciation reserve funds or operating funds described in Rev. Rul. 78-
348 or 78-349; proceeds of certain taxable advance refunding bonds
issued in conjunction with tax-exempt bonds; amounts which, for periods
of time, cease to be treated as gross proceeds as a result of the
operation of the "universal cap" or "transferred proceeds rules

" of sections 1.148-6(b)(2) and 1.148-9(c) of the Income Tax
Regulations).  Furthermore, sometimes it is not clear whether particular
amounts are gross proceeds of an issue.  If an issuer, out of an excess
of caution, decides to invest certain moneys in SLGS because they may be
gross proceeds, that issuer should not be penalized if it is later
determined that those moneys are not gross proceeds.  In addition, while
the terms "proceeds" and "gross proceeds" are defined in the current
regulations applicable to obligations issued after June 30, 1993, there
also remains a need to provide SLGS for investment of amounts issued
under prior regulations where such terms may not be similarly used or
applied.  Finally, the formulation of section 344.0(a) excludes certain
amounts for which SLGS should be available, such as amounts subject to a
rebate exception and invested for a temporary period, but which are bond
proceeds although not subject to yield restrictions or arbitrage rebate
provisions.

    In order to define more precisely the amounts that may be used to
purchase SLGS and to remove any ambiguities, we encourage the Treasury
to adopt consistent terminology throughout the Proposed Regulations
utilizing language within section 344.0(a) which makes clear that SLGS
may be purchased with any amounts that constitute gross proceeds of an
issue or any other amounts which may assist an issuer of tax-exempt
bonds in complying with applicable provisions of the Internal Revenue
Code relating to such tax exemption.  Language to this effect would
satisfy the concerns which we have identified.

    Our second (and final) technical modification relates to the
application of the six-month penalty for non-settlement to state and
local government units, particularly when such entities act as issuers
of obligations the proceeds of which are loaned to conduit borrowers.
Section 344.0(b) defines "government body" in terms of state and local
governmental issuers.  Section 344.1(h) imposes a penalty for
noncompliance on "any government body."  Under the current regulations,
the noncompliance penalty applies to "subscribers," an undefined term
but which in practice included bankers, trustees and conduit obligors.

    Our concern with this change is that a government body acting as a
conduit issuer (i.e., an issuer who loans bond proceeds to another
borrowing entity) may be precluded from subscribing for SLGS for a
period of six months as a result of the noncompliance of the conduit
obligor (i.e., the party receiving the benefit of the borrowing and
typically responsible for investment and rebate compliance).  Most
states have state loan programs for various purposes such as housing,
health care and education which service multiple conduit obligors.  Such
programs are subject to various constraints under the Internal Revenue
Code, but generally have been recognized by the Congress and the
Treasury as appropriate and often cost-effective.  However, if any one
conduit obligor's failure to comply could subject all conduit obligors
under such a program to a six-month "freeze-out," then no conduit
obligor could structure its plan of investment based on the assumption
that SLGS would be available to it as needed.  This would app

ear to be placing a penalty where none is deserved and creating real
compliance problems for certain conduit obligors facing investment and
rebate constraints.  To create a split in the market use of the SLGS
program between conduit issuers and all other issuers seems an
unfortunate result both in terms of compliance costs for conduit
borrowers and in potential market reaction to the different security
behind advance refundings of conduit and non-conduit borrowers.  Given
the current controversy over "yield burning," conduit borrowers are
potentially being denied an important compliance and cost-savings tool.

    In such circumstances, we believe that, solely for purposes of the
six-month penalty, conduit obligors and not the government body be
considered to be the subscriber on whom the penalty is imposed.  Such a
change would also prevent a noncomplying conduit obligor from
resubscribing during a six-month penalty period through a different
government body.  In this regard, we suggest that, for purposes of
section 344.1(h), the term "government body" be given the same meaning
as the term "obligor" under section 1.150-1(d)(2)(ii)(B) of the Income
Tax Regulations.  We believe that this represents the correct policy to
be applied in cases of noncompliance and urge that you consider such a
change to the Proposed Regulations.

    Notwithstanding the three suggested changes identified above, we
hope that the Proposed Regulations are adopted in final form in an
expeditious manner.  These Proposed Regulations, when made final, should
serve to enhance greatly the Bureau of the Public Debt's SLGS program
and increase the circumstances where SLGS are the preferred investment
vehicle to be used by state and local governments.

                            Respectfully submitted by:

                            The Arbitrage and Rebate
Committee

                                        By:
                                David A. Caprera

________________________________________________________________________
_______

Comment # 5 - Sherman & Howard L.L.C.


August 30, 1996

Division of Special Investments
Bureau of the Public Debt
Department of the Treasury
200 Third Street
P. O. Box 396
Parkersburg, W. Virginia 26101-0396
VIA EXPRESS MAIL AND
INTERNET
Attn: Brad Pyatt
Division of Special Investments at

[e-mail]


Dear Sir:

    This letter contains comments on the proposed regulations governing
United States
Treasury Certificates of Indebtedness, Treasury Notes and Treasury Bonds
-- State and Local
Government Series, which are proposed amendments to 31CFR part 344, as
published in the
Federal Register on July 26, 1996.

    We have two comments on the proposed regulations.

    1.   Postmarks.  Section 344.3(b)(1) requires that subscriptions be
received by
Public Debt either 5 or 7 days before the issue date, depending on the
size of the subscription
and Section 344.2(b) provides that interest rate is fixed by the maximum
rate in effect on the date
the subscription is  received .  We believe it is important to allow the
filing deadline to be met
and the interest rate to be fixed by referenced to a  postmark  date, as
in the case in the existing
regulations, in addition to a  receipt  date.

    State and local government series securities are frequently acquired
in connection
with advance refunding bond issuances.  Typically, on a day certain, a
sale is held for the
advance refunding bonds and the yield on those bonds is determined based
on the price at which
those bonds are sold to the public, as is required by Section 148 of the
Internal Revenue Code.
Once that yield is known, in the case of an advance refunding bond, an
escrow which is to be
acquired with the proceeds of the advance refunding bond can be
structured and typically
purchased.  Because of market volatility, it is important to contract to
purchase and fix the
interest rate on the securities being acquired on the same day that the
interest rate is fixed on the
bonds which are being sold.  Otherwise, if there is an abrupt overnight
change in interest rates,
it may be that the amount of bonds sold will not be adequate to satisfy
the advance refunding,
or even that the advance refunding is not an economical transaction.
Consequently, it is the
practice in this industry to contractually  lock in  interest rates on
the obligations being acquired
on the same day that interest rates are  locked in  on the bonds.

    Because of this, it is important to be certain on the date that the
bonds are sold
that interest rates are fixed for the SLGS.  Our typical practice in
doing this under the existing
SLGS regulations is to both facsimile a copy of our initial SLGS
subscription to the Bureau of
Public Debt, and to send a copy of that subscription via United States
Postal Service Express Mail, return receipt requested.  We do not have a
way to confirm whether or not the facsimile
was received by Public Debt, and as you know, problems can happen with
facsimiles, such as
they run out of paper or there is a power failure, etc.

 When we also send our subscriptions by Express Mail and get a postmark
on the Express Mail, however, we have a certain and secure
way of proving, should it ever be necessary, that we submitted a
subscription on the date of our
bond sale, and therefore should be able to use the SLGS interest rate
tables that were in effect
for that date.

    The regulations at 344.2(b) and 344.3(b)(1) forecloses us from using
this postmark
to fix the interest rate.  As is stated above, we believe it is
important to keep this alternative.
We suggest that the regulations be changed as follows.

         A.   Change the 4th sentence of Reg.   344.2(b) to read as
follows:

     The applicable rate table for any subscription is the one in effect
    on earlier of: (i) the date the subscription is received at Public
    Debt; or (ii) the date the subscription was mailed if it was mailed
    using United States Postal Service  Express Mail  service, return
    receipt requested.

         B.   Amend section 344.3(b)(1), first sentence, to read as
follows:

     An initial subscription, either on a designated Treasury form or in
    letter form, stating the principal amount to be invested and the
    issue date must be either:


          (i) received by Public Debt; or

         (ii) mailed by United States Postal Service  Express
         Mail  service, return receipt  requested

    at least 5 business days before the issue date for subscriptions of
    $10,000,000 or less, and at least 7 business days before the issue
    date for subscriptions of over $10,000,000. . . .

    2.   Subscription date for  0" interest into SLGS.  One of the
regulations
discussed above, 344.3(b) also requires that subscriptions may not be
received more than 60 days
prior to the issue date.  Frequently in escrows with advance refunding
issues as described above,
there is a need to acquire  zero  interest rate SLGS on dates interest
is received from the
proceeds of other SLGS.  Sometimes this can be as often as quarterly,
depending on the structure
of the escrow, and under the existing and the proposed regulations, the
escrow agent would be
required to file a new subscription for SLGS for these zero interest
SLGS four times a year.  This
seems like an unnecessary amount of paperwork for  zero  interest rate
SLGS, and it seems to
us that it would be less burdensome to both Public Debt and to SLGS
subscribers if they could
do, e.g., annual subscriptions.  This interest rate is not one that is
affected by a market interest
rate changes. To achieve this result, we would suggest that the last
clause in the first sentence
of 344.3(b)(1) be changed to read as follows:


          . . . but in no event will subscriptions be received more

    than


     (i) 1 year prior to the issue date in the case of
    subscriptions for SLGS that bear interest at a 0% per annum rate,
and


    (ii) 60 days prior to the issue date in the case of all other
subscriptions.

    We appreciate your attention to this letter.

                             Sincerely,



                             John O. Swendseid

JOS/dm
g:\wp\docs
\01000jos.96\pubdebt.ltr