New Rules Help State, Local Governments Refinance Bonds

FOR IMMEDIATE RELEASE

October 21, 1996

The Treasury Department today issued final regulations for the State and Local Government Series (SLGS) program that are designed to make it easier and less costly for state and local governments to refinance and invest proceeds of tax-exempt bonds.

These tax-exempt bonds are often issued to finance important state and local projects like school and road construction, bridge and tunnel repairs, and street resurfacing.

In proposing these regulatory changes last July, Secretary Robert E. Rubin said they “are a good example of reinventing the federal government, saving taxpayer dollars, eliminating unnecessary regulation and introducing new flexibility.”

The new regulations will take effect when published in the Federal Register later this week and will apply to SLGS subscribed for from that day on. Included among the changes are:

• a 60 percent reduction in the federal government's fee, from 12 1/2 basis points to 5;
• shortened notice periods for purchase and early redemption;
• elimination of the “all-or-nothing” rule to allow issuers flexibility to invest proceeds in SLGS and open market securities simultaneously;
• permission for issuers to invest in long-term SLGS those funds subject to rebate and to roll over proceeds of those maturing SLGS (including interest) into new SLGS;
• an allowance for early redemption of SLGS at a premium, under certain market conditions; and
• elimination of the purchase limit on demand deposit SLGS and extensive certification requirements contained in existing regulations.

In response to public comments received subsequent to last July's proposals, Treasury also has included regulatory language that will increase SLGS maturities to as much as 40 years, allow a tax-exempt issuer to lock in a given day's SLGS rate with the postmark on the subscription, and clarify penalty and revocation rules.