House Republicans have proposed adding a provision to a tax reform bill that would eliminate the tax exemption on interest on private activity bonds (PAB) for all new projects after 2017, effectively wiping out a key incentive to use them.
Congressional estimates indicate that the measure, Sec. 3601 of the bill, which was introduced Nov. 1, would increase revenue by $39 billion through the next decade, according to the House Ways and Means Committee’s summary of the proposal.
PABs have helped to finance infrastructure projects throughout the country, ranging from Pennsylvania’s Rapid Bridge Replacement Project — a P3 — to water and airport projects. About $20 billion of the $424 billion in debt state and local governments issued in 2016 were PABs, Bloomberg reported.
A move to discourage their use could put a damper on President Donald Trump’s goal of encouraging private investment in infrastructure and seems to be at odds with the proposal to remove the $15 billion cap on the amount of Qualified PABs that can be issued for highway and surface freight transfer facilities expressed in his budget roll-out last May. The administration also said it supports expanding PAB eligibility.
Critics of the proposal in the House bill point out that, in addition to transportation projects, states have used PABs to build affordable housing and to support economic development after terrorist attacks and other disasters, the Wall Street Journal reported. (paywall) Nonprofit hospitals, colleges, and universities would also be adversely affected, Sandy MacLennan, president of the National Association of Bond Lawyers and an attorney at Squire Patton Boggs told the Bond Buyer.
“Any alteration for the tax-exemption would significantly increase costs and lead to decreased infrastructure investment in communities where it is needed most,” said Mike Nicholas, chief executive officer of the Bond Dealers of America. The group has also warned that the measure would increase local governments’ costs, while lowering the amount funding that is available for public works.
NCPPP is one of 22 organizations that signed a letter to House Ways & Means Committee Chairman Kevin Brady and Ranking Member Richard Neal, to express opposition to the portion of the bill that would eliminate the tax exemption for PABs. The letter points out that, since 2005, these tools have been used on 24 projects in 15 states and that termination of their tax-exempt status would constrain funding for much-needed infrastructure projects, raising their costs or putting private financing for them out of reach for many state and local governments. They are planning to send a letter to the Senate as well.
The House Ways and Means Committee began deliberating on the bill Nov. 6. The process could take several days, and will be followed by a full House vote.
Join us in Miami Beach in January at P3Connect
P3Connect, which had been scheduled to be held in October, was rescheduled due to the damage Florida sustained from Hurricane Irma. The event will be held January 22-24, 2018, at its originally planned location, the Confidante Miami Beach, and the program remains unchanged.
Revel in the warm weather while you explore how the nation’s growing need to preserve and improve its infrastructure systems is altering the P3 landscape. Learn what challenges and opportunities exist, all through the eyes of thought leaders who will help to chart the road ahead. For more information and to register, visit the P3Connect website.
Register Now for Upcoming P3 Bootcamps in LA and DC
Join us for P3Bootcamp in Los Angeles on Dec. 4. During this popular one-day P3 training course, you’ll join experts in the field for multiple panels, networking opportunities and an in-depth introduction to the P3 landscape. Sessions will focus on everything from identifying a potential P3 project to market trends, making P3Bootcamp an ideal course for public and private sector members who are looking to enter the new era of infrastructure.
For those of you on the East Coast who want to demystify the ins and outs of negotiating P3 agreements with the federal government, join us Dec. 7 in Washington, D.C. for the first Federal P3Bootcamp. This one-day course, also taught by experts with years of experience in the P3 space, will teach you everything you need to know to do a deal with Uncle Sam. To learn more and register, visit the P3Bootcamp website.