Bill Offered in Senate Seeks To Uncap Water PABs

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DALLAS -- A bill introduced in the Senate by a bipartisan pair of lawmakers mirrors legislation pending in the House that would eliminate the state volume cap on private-activity bonds issued for water utility projects.

The Sustainable Water Infrastructure Investment Act, S. 2345, sponsored by Sen. Bob Menendez, D-N.J., and Sen. Mike Crapo, R-Idaho, is the Senate version of HR 4237, the Sustainable Water Infrastructure Act of 2014. That bill was introduced in the House in March by Rep. John Duncan, R-Tenn., and Rep. Bill Pascrell Jr., D-N.J.

Both measures would amend the 1986 Internal Revenue code to carve out an exemption from the state PAB volume caps for "bonds for facilities for furnishing of water and sewage facilities."

President Obama also proposed the removal of the state volume cap for water and sewer projects in his budget request for fiscal 2015.

A U.S. Treasury report on the president's proposal to expand water and sewer PAB volumes said it would result in a $201 million reduction in federal revenues. A study by the congressional Joint Committee on Taxation estimated the revenue loss would be $166 million through 2024.

The Treasury Department said in its summary of the president's tax proposal that the additional PABs would complement efforts by the Environmental Protection Agency and local governments to finance water projects.

"Removing the volume cap on tax-exempt qualified private-activity bonds for water and wastewater infrastructure facilities would encourage additional private investment and public-private partnerships in these infrastructure facilities," the Treasury report said.

The president's budget proposal included $1.8 billion for state clean water and drinking water revolving loan programs, which are major funding sources for municipal water infrastructure. The fiscal 2015 proposal is $581 million less than the state water revolving funds received in fiscal 2014.

Removing the cap on water infrastructure PABs would generate up to $6 billion of much-needed private investment, said Michael Deane, executive director of the National Association of Water Utilities, which represents privately owned water companies.

"PABs are a critical source of financing for the public water systems serviced by regulated water utilities, and serve as an important tool to leverage the value of public private partnerships in resolving the infrastructure gap that exists in our nation's water systems," Deane said.

Similar proposals have failed in the past, but Deane is optimistic that the bipartisan approach has sufficient support to be enacted this time.

"We believe it is doable," he said. "It's something we've worked on for a long time."

Exempting water PABs from state volume caps is good public policy, Deane said.

"A removal on bond caps for water projects will bring funding for this vital piece of the nation's infrastructure in line with airports, high-speed rail, and solid waste disposal, all of which are currently exempt from existing caps," he said.

Sen. Mark Kirk, R-Ill., has introduced a bill to raise the cap on federally allocated PABs for surface transportation projects to $19 billion from the current $15 billion. The capacity is allocated by the Transportation Department, and the bonds do not count against a state's volume cap.

The president's proposed budget for fiscal 2015 also includes the additional $4 billion of transportation PABs. A similar provision was part of Obama's fiscal 2014 proposal but was not adopted.

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