The Republican tax plan released in early November would eliminate all private activity bonds (PABs), which allow tax-exempt municipal bonds to be issued on behalf of a government for projects built and paid for by a private developer. Interest earned on municipal bonds issued by governmental entities to fund public water and wastewater infrastructure, however, would remain fully exempt from federal taxation under the plan.
The move to ax PABs was a surprise to many in the infrastructure finance community who regard them as a way to stimulate private investment in infrastructure, an approach supported by the Trump Administration.
The tax bill would also ban issuance of advanced refunding bonds, which allow governments to refinance municipal bond debt earlier than they would have otherwise, ultimately letting governments take advantage of lower interest rates years sooner. The GOP plan would also eliminate tax-exempt bonds for professional sports stadiums.
It is estimated that up to 20 percent of the $3.7 trillion municipal bond market is made up of private activity bonds, and between 10 and 20 percent of all annual bond refinancings fall under the category of advanced refunding bonds.