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PAB Cap Grows to $30.61B

WASHINGTON - New population estimates released by the Census Bureau yesterday for 50 states, the District of Columbia, and Puerto Rico, coupled with an inflation adjustment for the 20 smallest states and the district, will boost the amount of private-activity bonds that can be issued nationwide in 2009 to $30.607 billion.

The increase represents a $1.795 billion, or 6.2%, uptick over the $28.812 billion of PAB capacity for 2008.

In addition to the 2009 figure, which was based on Census Bureau estimates for population as of July 1, states still have some remaining from the $11 billion of additional private-activity bond capacity for housing that Congress authorized for them in legislation enacted July 30.

The new law - a response to the subprime mortgage crisis and mounting foreclosures - also exempts all private-acticity housing bonds from the alternative minimum tax. It also allows states and territories to issue the additional PAB housing bonds through the end of 2010 to either refinance subprime mortgages, provide loans to first-time homebuyers, or finance multifamily housing projects.

Of the 6.2% increase for 2009 in the 23-year-old state-by-state volume cap, about $1.549 billion was prompted by a 0.795% rise in the U.S. population from a year ago, while $245.85 million was the result of a cost-of-living adjustment for states with smaller populations.

The annual increase in the 2009 cap comes as the Census Bureau yesterday released figures showing the nation's population rose by about 2.45 million residents to about 308 million from the estimates released a year ago.

The boost in the volume cap for the coming year also comes after the Internal Revenue Service issued a revenue procedure in October, which said as of Jan. 1 an inflation adjustment in the cap would give the smaller-population states an increase in their underlying caps for the seventh year in a row. Their caps are not based on population estimates, but are instead a set figure that takes inflation into account.

Specifically, the adjustment will allow the 21 smaller-population states, including the District of Columbia, to issue $273.270 million each in 2009, up from 2008's $262.095 million cap.

Meanwhile, the per-resident limit for the 29 large-population states will increase for the second straight year to $90 from $85 per resident.

The IRS adjusts states' private-activity bond volume caps each year using the consumer price index for the 12-month period ending Aug. 31 that is compiled by the Labor Department and the estimates of the states' populations that are prepared by the Census Bureau.

The cap's overall 6.2% increase for 2009 is well above the 1.1% jump last year, when the per-person cap was kept at $85 for the second year in a row.

Th PAB cap estimate for 2009 does not include four U.S. possessions - Guam, the Northern Mariana Islands, and the U.S. Virgin Islands - which are treated like states by the IRS, but have populations so low that they receive the small-state minimum. They are low-volume issuers and rarely, if ever, reach their PAB caps. However, the estimate for 2009 includes Puerto Rico, a fifth, high-volume possession.

The Bond Buyer has not included Puerto Rico in previous years but did so this year. Its cap in 2009 will be $355.86 million, up from $334.02 million this year.

Based on the inflation adjustment and the new census estimates, California, with a population of 36.76 million, once again will have the largest private-activity bond volume cap next year: $3.308 billion, up 6.5%, or just over $200 million, from this year.

Texas, which gained more than 400,000 residents from last year's estimate to 24.327 million, will have the second largest cap of $2.189 billion, up 7.8% or about $158 million.

Meanwhile, New York, with a population estimate of 19.490 million, will be third again with a cap of $1.754 billion, up from $1.640 billion last year.

Other states with $1 billion or more in volume caps are: Florida with $1.650 billion, up $99 million; Illinois with $1.161 billion, up $68.674 million; and Pennsylvania with $1.120 billion, up $63.558 million.

Wyoming, with just 532,668 residents - an increase of 9,838 from last year's estimate - remains the smallest U.S. state, and will receive the minimum cap of $273.27 million in the coming year. The District of Columbia, meanwhile, registered a small increase of about 3,500 residents for a total of 591,833. Like the other small-population states, it will receive the new minimum cap of $273.27 million.

Louisiana posted the largest percentage increase to its volume cap, 8.8%, spurred by a population that grew by about 117,592 to 4.411 million. The increase means that the state's volume cap will increase next year to $396.972 million from $364.922 million.

Though population estimates declined in three large-population states - Connecticut, Michigan, and New Jersey - they did not receive any decline in their overall cap because of the $5 per capita increase for them.

Similarly, Maine, New Hampshire, and Rhode Island lost population compared to the year-ago estimates, but their volume caps all rose because of the rise in the small-population state minimum.

Annual adjustments to state private-activity bond volume cap levels are required by a tax law change enacted by Congress in 2000. The change raised the cap over a two-year period from its original level of the greater of $50 per resident or $150 million per state set under the Tax Reform Act of 1986 to the larger of $75 per capita or $225 million per state starting in 2002.

Beginning in January 2003, the cap was indexed for inflation. Rising costs drove up the per-resident cap to $80 in 2004, and while inflation rose in the subsequent two years, it did not rise enough to trigger an increase until this year.

Federal law stipulates that the per-capita volume cap must be raised in multiples of $5 and the per-state minimum must be increased in multiples of $5,000. The per-capita and per-state minimum must subsequently be rounded to the nearest $5 or $5,000 interval each year.

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