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Private Activity Bond Cap to Increase 1.1% or $349.01M in 2013

DEC 21, 2012 1:51pm ET
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WASHINGTON — State and local governments will be able issue a total of $33.170 billion of private-activity bonds under a national volume cap next year — 1.1% or $349.01 million more than in 2012.

The increase is based on the latest population figures released Thursday by the Census Bureau and a new PAB cap formula published by the Internal Revenue Service in November.

Overall the U.S. population, including Puerto Rico, grew to 317.58 million from July 1, 2011 to July 1, 2012, an increase of 2.28 million or 0.72%, signaling slow growth.

The 0.72% growth rate was slightly lower than the 0.73% in 2011, and it's among the slowest on record and remains at levels from the mid-1930s, according to the Census Bureau.

The formula for determining the caps — $95 per capita or $291.87 million, whichever is greater — was released by the IRS in Revenue Procedure 2012-41.

The per capita rate has not changed during the last three years, but the minimum amount, which is used by states with low population, rose to $291.87 million from $284.56 million.

However, states rarely issue the maximum amounts of PABs under their caps for any given year. They are allowed to carry forward unused amounts for three years.

Over the last four years, national volume caps have risen steadily, with a 5.1% spike in 2011 the only exception.
North Dakota grew faster than any other state in 2011, its population jumping 2.17% to 699,628, according to the Census Bureau. The District of Columbia was the next-fastest growing state, gaining 632,323 or 2.15%. But due to their small population, North Dakota and D.C. will each receive the minimum PAB cap.

Texas was the next fastest growing state followed by Wyoming, Utah, and Nevada.

California remains the most populous state, at 38 million, and continues to have the largest PAB volume cap of $3.61 billion in 2013, up 0.9% from $3.580 billion in 2012.

Similar to last year, Texas had the second largest PAB cap at $2.475 billion, a 1.5% gain from 2012.

The only states that lost population between 2011 and 2012 were Rhode Island, down 0.03% and Vermont, down 0.09% and Ohio, down .01% and Puerto Rico, down 1.07%.

Ohio's PAB volume cap will decrease by 0.01% to almost $1.1 billion in 2013. Puerto Rico's PAB volume cap will decline by 1.1% to $348.37 million in 2013 from $352.14 million, following a 0.5% cap decline in 2012 and the third consecutive annual decline.

Puerto Rico's general obligation debt was recently downgraded to just above junk by Moody's Investors Service citing weak economic growth prospects after six years of recession and the commonwealth's severely underfunded retirement system.

Virtually all of the state caps will be higher next year, with the exception of Ohio and Puerto Rico, according to the current population estimates and the IRS formula. Also, Illinois' cap remained unchanged.

Despite the growth, the percentage increases in caps remain small compared to 2011 when eight states showed gains of 7% or more.

Twenty-one states show the highest cap growth of 2.6% while 19 states show cap growth of just under 1% for next year.

The PAB volume cap figures for 2012 do not include four U.S. possessions — American Samoa, Guam, the Northern Mariana Islands and the U.S. Virgin Islands. They are not included in the Census Bureau's population estimates. These low-volume issuers rarely, if ever, reach their PAB caps.

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