What did the Federal Tax Reform Act of 1986 do regarding economic development bonds?

The Federal Tax Reform Act of 1986 significantly affected the landscape of municipal finance, particularly with respect to economic development bonds. The act limited the use of tax-exempt economic development bonds, thereby restricting the ability of municipalities to issue these types of bonds for various development projects.

Before this reform, municipalities could use tax-exempt bonds more freely to stimulate local economic growth. However, the 1986 Act introduced stricter criteria for bond issuance, particularly for tax-exempt status. This was done to prevent potential abuses of the tax-exempt bond system and to ensure that these financial tools focused on genuine public benefit rather than merely subsidizing private enterprises. By enforcing these limitations, the reform aimed to preserve the integrity of the tax-exempt bond market and safeguard the interests of taxpayers.

Therefore, the correct understanding of the 1986 Act is that it placed constraints on the issuance and utilization of tax-exempt economic development bonds, reshaping how cities and municipalities could finance new projects and economic initiatives.