The third generation of Texas municipal bond lawyers included many attorneys who were personally trained by Hobby McCall, Paul Horton, and Millard Parkhurst. Such lawyers include the late E. Ray Hutchison, Peter Tart, Robert “Buddy” Lewis, Richard Porter, Chuck Kobdish, Jeff Leuschel, Thomas Spurgeon, Ted Brizzolara, and others. This generation also included, for the first time, bond lawyers whose practice was entirely devoted to issues regarding the federal income taxation of municipal bonds.
Prior to the time Hobby McCall joined the firm in 1949, bond lawyers gave very little thought to the tax-exemption of municipal bonds; it being somewhat of a foregone conclusion. Given Hobby’s prior experience representing the Commissioner of Internal Revenue, he insisted that the firm begin paying closer attention to whether circumstances warranted rendering an opinion as to tax-exemption. Hobby joined the ABA’s Section on Taxation in 1954, served as Chairman of the Local Government Section in 1974-75, and was a member of the Committee on Taxation of Municipal Bonds.
McCall Hires Tax Lawyers
The 1970s and 1980s witnessed a significant increase of Federal oversight of the tax-exempt bond market. The firm responded by hiring tax lawyers whose practices were solely dedicated to understanding these Federal tax laws. In the 1970s, there were substantial limitations imposed on economic development tools, such as industrial revenue bonds and housing bonds. Arbitrage rules were adopted to deny issuers the ability to profit from the investment of bond proceeds and other amounts used in connection with the bonds, such as debt service funds. New statutes and regulations were becoming more regular throughout this period and new rules seemed to be an almost daily occurrence. In 1982, Hobby McCall met with Red Cavaney, Deputy Assistant to President Ronald Reagan, at the offices of Ballard Spahr Andrews & Ingersoll in Washington, D.C., representing the interests of various tax-exempt public finance groups.
In 1982, the firm hired Ken Iltz, who was with the firm until 1989. Ken had previously been an attorney with the Office of the Chief Counsel of the Internal Revenue Service. In 1984, Federal tax restrictions became even more important when the U.S. Supreme Court ruled in South Carolina v. Regan (465 U.S. 367) that state and local governments had no constitutional right to tax-exemption and that the laws affecting their bonds was an exercise of legislative accommodation by the U.S. Congress. Two new concepts of this Federal oversight were developed: continuing compliance and audit review. State and local governments were subject to IRS review for the first time.
With the introduction of the 1986 Tax Act in December 1985, most tax exempt financing stalled throughout the United States. Nervous issuers, with the aid of the firm, sought to educate Congress about the importance of the tool. The efforts prevailed and in March of 1986, Congressional leaders issued a joint statement freeing up the markets. The vast majority of the firm’s clients issued bonds in 1985 to take advantage of the existing tax regulations before the new, stricter regulations took effect. Some bond closings even moved to the State of Hawaii, in order to gain an extra five hours before the new laws took effect.
The first national ranking of Bond Counsel was made by Securities Data Company for the year 1985, and McCall, Parkhurst & Horton ranked first in Texas and fifth in the United States, and has maintained comparable rankings ever since.
Also in 1986, the firm hired Hal Flanagan, who spent the first four years of his career (1979 to 1983) as an attorney with the Legislation and Regulations Division, Office of Chief Counsel, Internal Revenue Service in Washington, D.C. Working in such position, Hal helped develop many tax-exempt bond provisions of what ultimately became the Internal Revenue Code of 1986. That same year, the firm hired Alan Raynor, Paul Martin, and John Fainter, respected municipal bond lawyers, who made the lateral move to McCall, Parkhurst & Horton.
The years that followed saw the rise and fall of the savings and loan industry, an explosion of industrial revenue bonds issued under the 1986 Tax Code, and the highest interest rates in U.S. history. In 1986, the firm opened a second office in Austin, followed by a third office in San Antonio in 1987. Thus, in a span of 25 years, the firm had grown from 3 attorneys in Dallas to 16 attorneys in three offices across Texas, with an ever-growing number of bond issues financed in each year.