WASHINGTON — A bipartisan House duo has introduced legislation that would authorize up to $50 billion of tax-credit bonds to be used over six years to finance transportation infrastructure projects, mirroring a bill pending in the Senate and garnering support from lobbyists even as some question whether such bonds could overcome expected hesitancy from investors.
Reps. Ed Whitfield, R-Ky., and Leonard Boswell, D-Iowa, introduced the Transportation and Regional Infrastructure Project, or TRIP Bonds Act, on Dec. 19. The bill is identical to one introduced by Sens. Ron Wyden, D-Ore., and John Hoeven, R-N.D., in July. It aims to raise $1 billion for each state to use on a wide array of transportation projects over the next six years by authorizing each state’s infrastructure bank to sell taxable, tax-credit bonds, rather than more traditional tax-exempt interest bonds.
“With millions of Americans still out of work and our infrastructure crumbling, TRIPs represent an opportunity to tackle both of these problems head-on, in a fiscally responsible manner,” Whitfield said.
Tax-credit bonds provide investors with a credit against their income taxes, rather than the more familiar tax-free interest structure of most municipal bonds. The TRIP Bonds Act would create a trust fund from customs user fees to back the bonds, which state infrastructure banks could then disperse to virtually any transportation project.
The bill’s sponsors say the tax-credit approach is more efficient and benefits a wider range of taxpayers, and many transportation industry lobbyists have expressed support.
Beth McGinn, a spokeswoman for the American Road and Transportation Builders Association, said the TRIPs proposal is a “good supplement to core investor programs,” and that the group has supported it since its introduction in the Senate.
Jack Basso, director of program finance and management at the American Association of State Highway and Transportation Officials, also gave the bill a thumbs-up. “It has a lot of potential,” he said. “We continue to be supportive.”
Basso said TRIP bonds have several advantages over direct government financing, especially since they would have a smaller impact on the federal budget: the program would cost just over $12 billion in lost tax revenue over 10 years, according to an estimate from the Joint Tax Committee.
But investors have traditionally been lukewarm on tax-credit bonds, and some market particpiants said TRIPs might not be very marketable.
“The market has some reluctance to buy tax-credit bonds,” said Ed Oswald, a partner at Orrick, Herrington and Sutcliffe LLP.
He said the complexity of the tax-credit bond system, which requires new Treasury Department rules for each new program, is one reason investors aren’t generally keen on tax-credit bonds.
Oswald said a better approach would be to give issuers the option of using direct-pay bonds like the wildly successful Build America Bonds program included in the stimulus bill. Wyden said earlier this year that BABs were proof that tax-credit bonds could be viable, but no issuer utilized the tax-credit option during the two years of the program.
That’s unlikely, however, because Democrats on Capitol Hill have been calling for an encore BABs authorization for months but have run into staunch opposition from key Republicans.
David Seltzer, a transportation finance expert and co-founder of Mercator Advisors LLC, agreed that such an option would greatly enhance the viability of the TRIPs.
“The bonds would be much more readily marketable,” he said.
The Senate bill awaits action in the Finance Committee, of which Wyden is a member.
The House legislation will have to go before the Ways and Means Committee. Neither Whitfield nor Boswell are members of that panel. Boswell is on the House Transportation Committee.
