Tax Policy:

Use of Tax-Exempt Bonds in Oakland, California

GGD-86-110BR: Published: Jul 24, 1986. Publicly Released: Jul 24, 1986.

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In response to a congressional request, GAO provided information on the use of tax-exempt bonds by Oakland, California, specifically: (1) transactions to sell and lease back city assets; and (2) allegations that Oakland planned to use bonds to give the Oakland Athletics baseball team a loan.

GAO found that: (1) between 1983 and 1986, Oakland sold 18 tax-exempt bond issues totalling $589 million; (2) the issued bonds will cost the U.S. Treasury and the State of California $91 million and $19 million, respectively, in foregone income tax revenues; and (3) the tax law concerning the loan transaction Oakland is considering is unclear. GAO concluded that Congress may want to clarify its intent on the use of tax-exempt financing to support private-purpose loans.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Provisions in the recently passed Tax Reform Act of 1986, placed more stringent requirements on the tax exempt financing for private purposes. Thus, this action could be considered as taken with respect to the general issue of limiting private purpose bonds; although no specific action was taken or is contemplated with respect to Oakland's loan to the Oakland A's baseball team.

    Matter: Since it is unclear whether current tax law provisions apply to Oakland's proposed loan to the Oakland Athletics, Congress may want to clarify its intent. Should a clarification be warranted, two possible alternatives would be to: (1) change the language of current tax law provisions to clarify the restrictions on uses of tax-exempt financing; and (2) direct the Internal Revenue Service to determine the extent to which tax-exempt bonds are being used for private purposes and, if warranted, to determine what is needed to correct the situation.


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