State Departments, Institutions and Agencies; Housing Finance Agency

Subject:

Requested By: John Crosland, Jr. Chairman Housing Finance Agency Board of Directors

Question: Does Chapter 907 of the 1981 Session Laws Require a Local Government to Obtain a Revenue Ruling From the U.S. Department of the Treasury Before Being Eligible for an Allocation of a Portion of the State Ceiling on Tax Exempt Mortgage Bonds?

Conclusion: No.

In December of 1980 Congress enacted legislation which put a ceiling on the amount of tax exempt mortgage bonds which a state could issue through state or local housing finance agencies. 26 USC § 103A, (P.L. 96-499). Section 103A(g) of the Statutes allocates 50% of the total ceiling to state housing finance agencies. Section 103A(g) further specifies that a state legislature can "provide a different formula for allocating the state ceiling among the governmental units in such state."

The North Carolina General Assembly by Chapter 280 of the 1981 Session Laws allocated the entire State ceiling to the North Carolina Housing Finance Agency (Agency). According to Agency officials this legislation was proposed by the Agency on the assumption that the Agency was the only agency in the State with authority to issue tax exempt mortgage bonds. Later in the 1981 Session of the General Assembly, local government officials indicated that "master notes" issued by municipalities or other local government agencies might qualify as tax exempt mortgage bonds. As a result of this determination the General Assembly enacted Chapter 907 of the 1981 Session Laws. Chapter 907 amended Chapter 280 by providing for a portion of the State ceiling to be allocated to local governments. The duty of allocating the local portion among the various local governments was given to the Agency.

Chapter 907 stated that a portion of the ceiling allocated to the Housing Finance Agency was to be reduced by the amount of notes issued by local governments "if, and to the extent, such notes are deemed qualified mortgage bonds as defined in 26 USC § 103A(c) by the United States Department of the Treasury." The Housing Finance Agency was given guidance in Chapter 907 as to how it was to allocate the local government portion among the various local governments as follows:

"In making its allocation the Agency shall consider the priority of filing the written request for allocation, the compliance of the requesting municipality, commission or authority with 26 USC § 103A et seq., and the availability of an allocation within the portion of the State ceiling allocated to municipalities, commission and authorities."

The question which has arisen is whether a local government is required to submit to the Housing Finance Agency a "revenue ruling" from the United States Department of the Treasury so as to enable the Agency to make a determination of the "compliance of the requesting municipality, commission or authority with 26 USC § 130A et seq." A subsidiary question is whether the Agency, in the exercise of its discretion, can require local governments to obtain a revenue ruling before being eligible for an allocation.

Chapter 907 does not specifically require the Agency to have a "revenue ruling" prior to allocating a portion of the State’s ceiling to a local governments. It is the opinion of this Office that the Agency has broad discretion in determining how to best fulfill its duty to "consider . . . compliance of (local government) with 26 USC § 103A." The Agency cannot impose requirements which, as a practical matter, would prevent the Agency from allocating a portion of the ceiling to a local government. To impose such requirements would clearly frustrate the purpose of the Act. Due to the length of time required for obtaining a revenue ruling of this nature, it is highly unlikely that a local government could obtain such a ruling within the time limits set forth in the Act for 1981 allocations, (Application by September 1 and determination by Agency within 45 days). For this reason we do not believe that the intent of the General Assembly can be achieved if the Agency in its discretion requires local governments to obtain a revenue ruling in order to be eligible for allocations for calendar year 1981.

Based on the facts available we are unable to form an opinion as to whether the Agency could require a revenue ruling for applications submitted by local governments in future years. It is possible that different time factors applicable in future years would make the requirement of a revenue ruling reasonable and therefore lawful. We strongly suggest that the Agency establish written policies and procedures to specify (i) what local governments must submit with their application and (ii) how the Agency will allocate the local government share among competing local governments. Such policies can impose reasonable requirements on local governments so as to enable the Agency to carry out its duties.

Rufus L. Edmisten Attorney General

William A. Raney, Jr. Special Deputy Attorney General