Public officials at the state and local levels of government have tried for years to get the federally imposed cap on Private Activity Bonds (PABs) increased. In spite of their efforts, there has been no success.
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Tax-exempt PABs provide low-cost financing for projects that serve a public purpose. However, the current cap of $15 billion is woefully inadequate. It doesn’t make a dent in the nation’s critical needs.
A few sectors – airport, high-speed rail, and solid waste disposal – are exempt from PAB caps -but most projects are not. A bill currently in committee in the U.S. Senate seeks to exempt water and wastewater infrastructure projects. This would help launch many critical water projects throughout the country. New construction is needed to meet population growth and to address the deterioration of thousands of water pipelines that are decades beyond their projected lifespans.
Everyone agrees that something must be done to preserve the nation’s infrastructure. But, there is no adequate public funding. The only remedy available is to pass the cost on to taxpayers either through increased fees or taxes.
Supporters of the legislation say exempting water and wastewater infrastructure projects will result in private investment and critical projects could be launched immediately. The bill would also allow cities and states to benefit from leading-edge technology expertise and economies of scale as well as, in some cases, collaboration in the areas of operations and maintenance of the projects.
Another PAB-related bill before Congress would change the federal tax code to create a new category of PABs for schools and other government-owned buildings. The bill allocates $5 billion for bonds and would encourage private investment in government buildings and facilities. State and local officials would benefit immediately if that bill becomes law. The result would fast-track major education projects, jails, public libraries, hospitals, affordable housing and more.
The new class of PABs would qualify elementary and secondary school buildings, state college or university facilities, hospitals, courts, community libraries, health care clinics, laboratories and research facilities. It would also qualify police and fire stations, emergency medical services facilities, buildings for workspace for employees of a government entity and correctional facilities. Local economies would benefit from the creation of jobs, citizen benefits and enhanced public assets.
As fewer federal dollars are allocated to state and local government subdivisions, alternative funding options must be found. PABs could play a significant role in bringing private capital into the mix for financing important projects. The proposed legislation deserves monitoring.
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