Obama proposes new financing tool for infra

The US President’s proposal to create Qualified Public Infrastructure Bonds could boost infrastructure investment and the use of P3s, S&P says.

Qualified Public Infrastructure Bonds (QPIBs), a new type of municipal bond that US President Barack Obama recently introduced as part of a broader proposal aimed at increasing infrastructure investment, could boost the use of public-private partnerships (PPP; P3), Standard & Poor’s (S&P) said in a statement.

The QPIB proposal, which the President is expected to include in the executive budget he will send to Congress in February, would lower the cost of capital for private sector partners of P3 projects the same way the municipal bond market provides cheaper capital to the public sector.

While private activity bonds (PABs) also provide lower-cost capital to private developers and operators through tax-exempt interest rates, they are limited in terms of qualifying projects and are capped. QPIBs would expand the scope of projects to include ports, airports, mass transit, solid waste disposal, water/wastewater, as well as surface transportation projects. In addition, QPIBs will have no expiration date, no issuance caps and interest on these bonds will not be subject to the alternative minimum tax, according to the ratings agency.

“QPIBs would definitely provide a spark to start-up projects, advancing projects that might not have gotten off the ground otherwise,” S&P said. “But for now, the big question, in our view, is: will it be approved?”

The ratings agency expects the proposal to undergo extensive deliberation in Congress.

The QPIB proposal is one more initiative Obama has undertaken in an effort to increase investment in infrastructure, a topic he has consistently focused on throughout his term in office, stressing its importance in terms of job creation, economic growth and increased competitiveness.

He did so once again on Tuesday evening during his annual State of the Union address delivered before both chambers of Congress.

“Twenty-first century businesses need 21st century infrastructure – modern ports, and stronger bridges, faster trains and the fastest Internet,” he said. “Democrats and Republicans used to agree on this. […] Let’s pass a bipartisan infrastructure plan that could create more than 30 times as many jobs per year, and make this country stronger for decades to come. Let’s do it. Let’s get it done,” Obama urged lawmakers.

A few moments later, the President returned to the topic of infrastructure, this time tying it in with tax reform. “Let’s close [tax] loopholes so we stop rewarding companies that keep profits abroad, and reward those that invest here in America. Let’s use those savings to rebuild our infrastructure and to make it more attractive for companies to bring jobs home,” he said.

The type of bipartisan infrastructure plan the President described, which uses savings resulting from changes to the tax code, has already been put forward by Maryland Representative John Delaney, who first introduced the Partnership to Build America Act in May 2013. As of December 2014, the bill had 39 Republican and 36 Democratic co-sponsors.

Delaney and fellow Congressman Mike Fitzpatrick re-introduced the bill on Tuesday ahead of the President’s address.

“We filed the bill ahead of the President’s State of the Union to make it clear that new policy answers that bring both sides together are possible,” Delaney said in a statement.

Official White House photo by Pete Souza.