Public officials at every level of government continue to face widening gaps between available funding and critical needs related to transportation projects. Contractors stand ready to engage and even bring capital to the table, but one of the programs that has allowed private-sector investment hangs in limbo in Congress. Private Activity Bonds (PABs) are being hamstrung by a federally imposed funding cap.
PABs are bonds that are issued by or on behalf of local or state governments to help finance large projects. This popular tax-exempt financial tool has played a significant role in lowering the cost of capital and thereby increasing private-sector collaboration in transportation projects nationwide.
Photo of I-35 in Fort Worth by Lars Plougmann licensed under CC BY 2.0.
For private developers, increasing the cap on PABs would allow more access to bonding with tax-exempt interest rates. This would, of course, encourage more private investment in public projects. These investments provide government with an alternative source of revenue while also delivering cutting edge expertise, innovation and efficiency from private-sector firms.
Current law limits the total amount of PABs to $15 billion, and that total covers every qualified entity in the U.S. Although Congress has shown an interest in increasing private-sector investment in transportation infrastructure projects, the $15 billion cap is a huge detriment.
Millions of dollars’ worth of PABs have been issued for transportation projects in Texas. Public-private partnerships (P3s) played a role in construction of the six-phase North Tarrant Expressway (NTE), a 36-mile managed lanes network along the I-35 corridor in Tarrant County. The second phase – a $1.6 billion project totaling 12 miles – used $274 million in tax-exempt PABs, and a Transportation Infrastructure Finance and Innovation Act (TIFIA) loan of $532 million helped reduce the finance cost significantly. The PABs will be repaid through project revenues.
In Dallas, the I-35 managed lanes LBJ Freeway project was designed to rebuild a roadway considered among the busiest and most congested in North Texas. Like the NTE project, the financing of this multi-billion-dollar P3 included $615 million in PABs, which at the time was the largest amount of PABs used for a toll road concession in the United States. The deal also included an $850 million TIFIA loan.
The U.S. Department of Transportation also approved $600 million in PAB allocations for the State Highway 288 project in Houston. The Texas Department of Transportation last month approved a contract with a private developer for the more than 10 miles of SH 288 from U.S. 59 to the Harris County line at Clear Creek. This project will include direct ramps to the Texas Medical Center as well as a new interchange with the Sam Houston Tollway.
The projects in Texas, and those in other states, are examples of the importance of PABs to the financing of transportation infrastructure. Combining PAB and TIFIA funding results in attractive incentives for private-sector investment in transportation projects.
Congress’ recent approval of the Fixing America’s Surface Transportation (FAST) Act authorized $1.16 billion for the TIFIA program. Added to previous authorizations, the program now has the financial resources to support about $140 billion in project investment over five years. But, there has been no increase in the amount available for PABs. The cap of $15 billion is still in place and this creates a big problem. Because two-thirds of TIFIA P3 projects also use PABs, experts predict that $10 billion in PABs will be needed over that five-year period. As it stands today, the balance of the PAB volume cap is at $4.2 billion – about $5.8 billion short of what will be needed.
Nearly a dozen national organizations – including the U.S. Chamber of Commerce, the American Association of State Highway and Transportation Officials, the Associated General Contractors and American Society of Civil Engineers – are currently urging members of Congress to increase the current volume cap on PABs. It would be great if thousands of others also weighed in on this important issue.
It makes incredible sense. The transportation infrastructure projects that will keep the nation competitive globally need PAB funding. If the cap is raised, private-sector financing will be available to help make the nation’s highways safer, reduce traffic congestion, decrease the nation’s carbon footprint and create thousands of jobs. Congress needs to hear from taxpayers who are interested in good roads and bridges and economic prosperity.
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