Private activity bonds spared in final US tax bill

The US infrastructure sector avoided a policy setback, as the final version of the tax reform bill released on Friday preserves the tax-exempt status of private activity bonds.

A previous version of the bill passed by the House of Representatives would have scrapped the PABs, a key financing source for public-private partnerships. A report issued by Fitch Ratings last month warned that eliminating PABs “would likely lower the interest in and feasibility of public-private partnerships”.

When the Senate passed its own tax bill, it broke from the House version by keeping in place the tax-exempt bonds. This approach won during the reconciliation process, with a vote expected on the final bill this week.

PABs have been tapped to finance many of the country’s largest PPPs; the modernisation of New York’s LaGuardia Airport, for example, is being financed with $2.5 billion in PABs. Without PABs, public-private partnerships would go up in cost, making them less appealing to governments.

“When the House bill came out, there was pretty serious concern within the industry that [PABs] would not remain,” Mike Likosky, head of infrastructure at 32 Advisors, told Infrastructure Investor. Their inclusion in the final bill, Likosky continued, “shows that the Republican Party is supportive of leveraged finance and of P3s. That was not entirely clear until the PABs passed through”.

Congress’s decision on the PABs comes as President Donald Trump plans to release his long-awaited infrastructure plan in the early months of 2018. The president has given mixed signals regarding the role of the private sector; after touting PPPs and hiring PPP specialists for key positions, in September he told Democrats the partnerships do not work.