Private Activity Bonds (PABs) that incentivize private investment in public infrastructure projects found themselves in the crossfire of competing Washington policy proposals this month. While President Obama and a pair of House lawmakers called for taking steps to facilitate the use of tax-exempt PABs in water and wastewater projects, another tax reform plan suggested eliminating PABs altogether.
Currently, private entities (with state government approval) may issue tax-exempt PABs to fund a variety of infrastructure projects that deliver a public benefit (including water and wastewater infrastructure improvements), but the total amount of PABs that may be issued annually in each state is capped. This means that water projects must compete for limited PAB financing opportunities with a variety of other infrastructure sectors.
PAB advocates have argued that exempting water projects from these PAB state volume caps would make more private financing available for water infrastructure projects that can create local jobs and help close the multi-billion dollar water infrastructure funding gap. President Obama’s FY15 budget plan embraced this viewpoint, and recommended eliminating the state volume cap on private activity bonds used to finance water and wastewater infrastructure.
Similarly, this month Reps. John Duncan (R-Tenn.) and Bill Pascrell (D-N.J.) also introduced legislation – H.R. 4237, the “Sustainable Water Infrastructure Act” (H.R. 4237) – that would do the same thing. Rep. Pascrell had introduced a similar bill in 2011, but it did not advance through Congress.
At the other end of the spectrum, the comprehensive tax reform plan released last month by House Ways and Means Committee Chairman Dave Camp (R-Mich.) would take a different approach and eliminate tax benefits for all newly issued PABs. According to Camp, the “government should not subsidize the borrowing costs of private businesses, allowing them to pay lower interest rates, while competitors … must pay a higher interest rate on the debt they issue.” Camp’s plan would not, however, alter tax benefits enjoyed by outstanding PABs.
Like other portions of the Obama budget and the Camp tax reform proposal, PAB reforms are not expected to appear high on the congressional agenda for the remainder of the year. But the level of attention given to PABs this month suggests that Congress may review their status in the coming years.