Support Amending the Internal Revenue Code to Remove the Volume Cap on Private Activity Bonds for Water and Wastewater Infrastructure

Background

One of the most useful tools of the federal government in providing long-term, capital-intensive infrastructure projects is the private activity bond (PAB), which are a form of tax-exempt financing for entities like state or municipal governments that want to partner with a private party to meet a public need. Congress controls the total volume of tax-exempt bonds by limiting issuance in each state with an annual cap - for example, in 2008 the volume cap for a state was the greater of either $85 per resident, or $262.09 million.

AGC Message

• Gap Exists Between Needs and Funds. Cities, towns and utilities face a major challenge over the next several decades replacing aging and worn-out water infrastructure. The situation is the result of some unfortunate timing; many different generations of water infrastructure put in service over the last hundred years are all coming to the end of their useful lives at about the same time. Multiple public and private studies show that water infrastructure needs range between $400 and $600 billion over a 20-year period. This need is far outpacing funding. In fact, the trend over the past few decades has been a decrease in Federal funding, shifting the burden to State and local governments.
• Removing the Cap Allows State and Local Governments to Leverage Private Dollars. Interest paid on bonds issued by State and local governments generally is excluded from gross income for Federal income tax purposes, which generally allows the interest rates on such bonds to be lower. This, in turn, lowers the borrowing costs for the beneficiaries of such financing.
• Encourages Public-Private Partnerships. PABs, by requiring public-private partnerships, spread risk and encourage innovation. By reducing a government's project management burdens and its risk (with PABs, the private entity assumes much of the financial risk and administrative responsibility), multi-year projects and a broader project load become more feasible as the government has more resources to allocate. Also, PABs do not affect the municipality's bond rating, an important benefit of PABs for municipalities.
• Precedent Exists. Exceptions from the volume cap are currently provided for other governmentally owned facilities such as airports, ports, high-speed intercity rail, and solid waste disposal sites.

AGC Supported Legislation

• H.R 537 - the Sustainable Water Infrastructure Investment Act of 2009

  Amends the Internal Revenue Code of 1986 to provide that the volume cap for private activity bonds shall not apply to bonds for facilities for the furnishing of water and sewage facilities.

• S.3262 - Sustainable Water Infrastructure Investment Act of 2010

  Amends the Internal Revenue Code of 1986 to provide that the volume cap for private activity bonds shall not apply to bonds for facilities for the furnishing of water and sewage facilities.