H2C PERSPECTIVES

 

Update on Tax Reform:  How Health Systems Can Prepare in the Face of Uncertainty
posted on November 28, 2017

 

On November 16th, the U.S. House of Representatives passed H.R. 1, the Tax Cuts and Jobs Act and the U.S. Senate Finance Committee passed JCX-51-17, their version of the Tax Cuts and Jobs Act.  It remains uncertain as to whether the Senate version of the bill will pass, as it requires 51 votes to pass (including a tie breaking vote held by Vice President Pence) and Republicans currently hold only 52 seats.

Like the House bill, the full list of proposed changes for businesses and individual taxes in the Senate bill is extensive, including the elimination of the tax-exemption on interest income earned on advance refunding bonds issued after January 1, 2018. However, unlike the House version of the bill, the Senate version would preserve the tax exemption on Private Activity Bonds, including qualified 501(c)(3) bonds, issued after 2017.

If the Senate version of the bill passes and the increase in the deficit is limited to $1.5 trillion over ten years, then the House and Senate versions could be reconciled and passed by a simple majority vote, in accordance with fiscal year 2018 budget resolutions passed by both the House and the Senate.  In its current form, the House version of the bill does not meet this test as the Congressional Budget Office has estimated that the bill will increase the deficit by $1.7 trillion. In contrast, the CBO has determined that the Senate version of the bill will meet the budget reconciliation requirements.

Although there is uncertainty about tax reform passing in the final days of this calendar year, H2C has a number of best practice recommendations for not-for-profit health systems to prepare for potential changes, such as evaluating all potential financing opportunities (advance refunding, current refunding, new money, bank maturity extensions), reviewing bond and bank documents to ensure maximum flexibility for future mode conversions and extending bank maturities on Direct Placements.