Congress Considers Lifting Private Activity Bond Cap

Oct. 1, 2011

With the recent debate over the ballooning national debt, it's clear that the water industry can't expect much additional funding from Congress in the next few years.

With the recent debate over the ballooning national debt, it’s clear that the water industry can’t expect much additional funding from Congress in the next few years. However, one bi-partisan bill stands a remote chance of passage this year, the Sustainable Water Infrastructure Act of 2011, which would remove the state volume caps on private activity bonds for public-purpose water and wastewater projects.

The bill is sponsored by both Democrats and Republicans in the House and Senate. The measure has been endorsed by various groups including the American Water Works Association, the National Association of Water Companies and the US Conference of Mayors.

The private activity bond (PAB) is a form of tax-exempt financing that encourages state and municipal governments to collaborate with sources of private capital to meet a public need. The partnership approach can help make infrastructure repair and construction more affordable for municipalities. Exempt facility bonds use private capital instead of public debt and shift the risk and long-term debt from the municipality to the private partner. In addition, the tax-exempt bond provides lower cost financing, which can translate to lower costs for the customer.

Each year Congress provides states with an annual allocation of federal tax-exempt bonds, based on population. However, most of those bonds are used to finance politically attractive, short-term projects. The annual volume cap hinders the use of PABs for water and wastewater infrastructure, which are generally multi-year projects and out of sight.

The Sustainable Water Infrastructure Act would amend the Internal Revenue code to remove the volume cap on private activity bonds for public-purpose water and wastewater projects. The goal is to provide an influx of low cost private capital to finance water infrastructure projects. Exceptions from the volume cap are currently provided for other governmentally owned facilities such as airports, ports, housing, high-speed intercity rail, and solid waste disposal sites.

Supporters of the program predict it would bring $50 billion in private capital into the water market at a cost of only $354 million in lost tax revenue over 10 years. At the same time, it could help create and support 1,425,000 jobs in the water industry and related sectors.

Michael Deane, executive director of NAWC, recently said tax-exempt bonds are “the single most effective financing tool the federal government can provide to communities to bring new money into long-term, capital-intensive infrastructure projects.”

While other bills have been introduced to provide funding for the water industry, most if not all will fall by the wayside as the focus remains on the national debt and next year’s election cycle. Sadly, the State Revolving loan funds are being trimmed and water infrastructure needs are only growing.

The Sustainable Water Infrastructure Act of 2011 was filed in the Senate (S. 939) by Robert Menendez, D-NJ, and Mike Crapo, R-Idaho, and in the House of Representatives (H.R. 1802) by Bill Pascrell Jr., D-NJ, and Geoffrey Davis, R-KY.

I would encourage you to write your local representative in the House and Senate, urging them to approve this measure.