Qualified private activity bonds (PABs) represent an opportunity to spur private sector investment into state and local government projects. To help galvanize these efforts, parts of the USD 1trn Infrastructure Investment and Jobs Act (IIJA) provide authorization of additional activities that qualify for PABs and a doubling of the bond cap for eligible surface transportation projects.
PABs can only have tax-exempt status if the project financed by the bond falls within the federally permitted purposes (qualified activities). PABs are issued by or on behalf of a local or state government for the purpose of providing special financing benefits for qualified projects. The financing is most often for projects of a private user, and the government generally does not pledge its credit. For some PABs, the federal government sets an annual volume cap of how much each state can issue for certain purposes.
PABs are used to attract private funds for projects that have some public benefit. PABs provide public-private partnership (P3) projects access to municipal bond market interest rates available to government project sponsors.
State governments usually bear the burden of financing surface transportation, carbon capture and broadband projects, so there is the likelihood that the PABs will decrease their borrowing needs. Specifically, raising the cap for surface transportation projects could facilitate more P3s. On the municipal side, other than roads, these PABs authorizations in the IIJA aren’t likely to provide much debt relief as the range of projects go far beyond those areas (i.e., schools, water systems, mass transit, affordable housing, public and nonprofit hospitals, and other government-owned facilities).
Fiscal year ends 30 September
On 10 August, the US Senate passed — on a bipartisan basis — the USD 1trn IIJA, also referred to as H.R. 3684. The IIJA focuses on “hard infrastructure.” For months, the IIJA was unable to get a vote in the House of Representatives until the fate of the USD 3.5trn “soft infrastructure” legislation proposed by congressional Democrats was resolved.
On 28 October, President Joe Biden (D) announced an agreement for USD 1.75trn on the soft infrastructure legislation (Build Back Better Framework).
On 5 November, the House passed the IIJA. President Biden is expected to sign the IIJA legislation into law on 15 November.
President Biden has also signaled a vote will happen during the week of November 15th on the Build Back Better Framework.
As these negotiations continue, Debtwire Municipals, through our Bill in Brief series, will present periodic summaries on elements of the IIJA that directly affect state and local governments.
by Paul Greaves