CBO: Eliminating Tax Exemption for New PABs is a Deficit-Reduction Option

WASHINGTON - Eliminating the tax exemption for new qualified private-activity bonds would raise $30.2 billion over 10 years beginning in fiscal 2015, according to a recent Congressional Budget Office report.

The report, released Thursday, provides estimates of the savings that would be achieved over 10 years from 79 options that would reduce federal spending or increase federal revenues. Many of the estimates are updates of those in a report released last year.

The PAB estimate, which would cover this past Oct. 1 through fiscal 2024, was from the Joint Committee on Taxation and was included in the CBO report. It is slightly lower than last year's projection of $30.5 billion for between the fiscal years of 2014 through 2023.

CBO also lists two bond-focused deficit reduction options that were included in previous reports but that the office did not provide estimates for this year. The first is replacing the tax exemption for governmental bonds with a direct subsidy. The second is fully restoring and applying to hospital bonds the $150 million cap on nonprofit organizations' outstanding tax-exempt bonds. That cap was partially repealed in 1997 and has never applied to 501(c)(3) hospital bonds.

The report is "quite literally a menu of options and I really don't like being on the menu," said John Godfrey, senior government relations representative at the American Public Power Association.

It is clear that policymakers are still looking at ways to tax bonds, Godfrey said. Public power utilities generally do not issue PABs, but APPA stands with other issuers, he added.

Doing away with the exemption for new PABs is one of the provisions in House Ways and Means Committee Chairman Dave Camp's tax reform draft legislation that was released earlier this year. Camp's plan also proposes eliminating the deduction for state and local taxes. Doing so would raise $1.09 trillion from fiscal 2015 to 2024, according to the report.

The report also gives estimates for several transportation and infrastructure policy changes.

One change would be to limit highway funding to the amount of projected revenues going to the Highway Trust Fund's highway account starting in fiscal 2016. Doing so would reduce federal outlays by $82 billion from fiscal 2015 to fiscal 2024, CBO said.

Another option would be to increase the excise taxes on motor fuels, which go to the HTF, by 35 cents-per-gallon and index the taxes to inflation. This would increase revenues by $469 billion over the 10-year period, CBO said.

Additionally, eliminating grants to large and medium-sized airports that are used to expand runways, improve safety and security, and make other capital improvements would produce savings of $8 billion over the ten-year period. Eliminating the Capital Investment Grants program, which gives funds to public transit systems, would produce savings of $14.7 billion from fiscal years 2015 to 2024, CBO said.

Phasing out certain grants to state and local governments for wastewater and drinking water infrastructure would produce savings of $12.6 billion over the 10-year period. Eliminating new funding for Community Development Block Grants, which can be used for affordable housing, would lower outlays by $23.3 billion.

Repealing the low-income housing tax credit starting in calendar year 2015 would increase revenues by $38.6 billion over the 10-year period. Some of the credits can be used by developers whose multifamily housing projects are mostly financed using private-activity bonds.

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