Fate of Private Infrastructure Bonds Uncertain in Senate Tax Bill

By Shaun Courtney

Airport operators could face millions of dollars in increased borrowing costs and delay infrastructure projects if the Senate tax bill expected Nov. 9 follows the House bill (H.R. 1) in eliminating tax-exempt private activity bonds.

Private activity bonds offer tax-exempt interest for qualifying projects such as airports, water facilities, docks, etc. Without the tax-exempt interest option, borrowing would become more costly for airports and other qualifying entities.

The House tax bill would eliminate private activity bonds. Details of the Senate bill were still being completed.

“We haven’t made all of the final decisions on our bill yet, some of those offsets are still in play,” Senate Commerce, Science and Technology Chairman John Thune (R-S.D.) told Bloomberg Government. Thune also is a member of the tax-writing Finance Committee.

Thune said he hesitated to give an “ironclad” statement on the fate of private activity bonds, given the evolving status of the Senate bill.

“It’s obviously an issue that we’ve heard from a number of entities that are involved,” he said.

Outside the Beltway

“At a time when Congress and the administration are talking about [a] possible $1 trillion infrastructure bill, eliminating the private activity bond and preventing airports from refinancing their debt, seems like a step in the wrong direction,” Metropolitan Airports Commission Associate Vice President for Governmental Affairs Mitch Kilian told Bloomberg Government.

The Metropolitan Airports Commission is a public corporation that operates Minneapolis-St. Paul International Airport and six general aviation airports in Minnesota.

The loss of private activity bonds as a financing tool would have increased costs in 2017 by half-million dollars and refinancing costs could have totaled $1 million more, Kilian said. The commission would face, conservatively, $1.5 million, but possibly more like $3 million or $4 million more each year in higher financing costs without the tax-exempt bonds.

“That’s $3 million or $4 million a year in projects that aren’t going to get done,” Kilian said. “And our list is always longer than what we really can do already.”

The American Association of Airport Executives is calling on Congress to create more options for financing airport infrastructure.

“Instead of making it more costly for airports to finance critical infrastructure projects, lawmakers should help airports by improving their bond options, increasing federal Airport Improvement Program funding, and eliminating the outdated federal cap on local Passenger Facility Charges.” Adam Snider, the director of public affairs for the association, told Bloomberg BNA in a statement.

What about Infrastructure?

The White House called for the cap on private activity bonds to be lifted in some of the early and only information the administration released about its $1 trillion infrastructure proposal. The Department of Transportation has a $15 billion cap on the tax-exempt bonds it is allowed to issue on behalf of private entities.

Steve Park, a partner at Ballard Spahr and practice leader of its P3/Infrastructure Group, said a significant driver of private investment is being able to leverage cheaper debt.

The House tax writers seem to think eliminating the tax-exempt nature of the bonds won’t make them less effective as a financing tool, Park said.

“That’s not true. It’s false logic. What will happen is the bonds just won’t get issued and they won’t get bought,” Park said.

The move to eliminate tax-exempt private activity bonds flies in the face of the administration’s goal of encouraging private investment in infrastructure, Park said.

“To get rid of it just makes it less and less likely that private investment is going to look at the U.S. to spend their infrastructure equity dollars,” Park said.

Wait and See, Then Fight

All eyes are on the Senate tax bill, even those of the Finance Committee’s minority members.

“How can I answer your question? I don’t know,” Sen. Bill Nelson (D-Fla.), ranking member of the Senate Commerce, Science and Technology Committee and member of the Finance Committee, told Bloomberg Government when asked about private activity bonds in the tax bill.

Nelson bemoaned the “secret” nature of the tax bill his Republican colleagues were putting together.

Eliminating private equity bonds is a “bad idea,” said Sen. Maria Cantwell (D-Wash.), who also serves on both the Commerce and Finance committees.

Cantwell said she would “absolutely” work to have the bonds restored if the Senate bill cuts them.

To contact the reporter on this story: Shaun Courtney in Washington, D.C. at scourtney@bgov.com

To contact the editor responsible for this story: Paul Hendrie at pHendrie@bna.com

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