WASHINGTON — Aviation groups are pushing for airport bonds to be permanently exempted from the alternative minimum tax, arguing that the it impairs airports’ ability to issue bonds to finance construction.

Airport bonds, usually classified as private-activity bonds, are issued to fund construction of runways and other facilities and are often repaid with passenger fee revenues. The AMT, which applies to interest earned on private-activity bonds and some governmental and 501(c)(3) bonds, is a separate tax computation under the Internal Revenue Code that, in effect, eliminates many deductions and credits and creates a tax liability for a wealthy individual who would otherwise pay little or no tax. State and local authorities that issue AMT bonds typically pay higher rates on the debt.

The recent stimulus act exempted all tax-exempt bonds issued in 2009 and 2010 from the AMT and also allowed issuers to do current refundings of bonds issued within the last five years.

Charles M. Barclay, president of the American Association of Airport Executives, told the Senate Commerce subcommittee on aviation this week that since the AMT exemption went into effect, the jammed airport bond sector has begun to move again.

Miami International Airport sold $600 million of revenue bonds last week, and the Metropolitan Washington Airports Authority sold $400 million of  revenue bonds in March, he noted.

“Miami airport officials expect that ... eliminating the AMT penalty will save the airport between $9 million and $14 million per year,” Barclay said.

Aviation groups including the AAAE contend that airport bonds should not be classified as private-activity bonds in any event, because they enable airports to provide a public service — the bonds are used to finance construction of runways and other facilities.

The aviation subcommittee and the Senate Finance Committee should implement a permanent repeal of the AMT for airport private-activity bonds, Barclay said.

The airport executives were joined by the major U.S. airlines in requesting a permanent exemption from the AMT.

In his testimony to the subcommittee, American Transport Association president and chief executive officer James C. May said the AMT on airport bonds not only makes the bonds less attractive to investors for tax reasons, but also causes airport issuers to have to pay higher rates on their borrowing.

“Permanently eliminating this punitive tax on airport bonds would result in broader access to bond markets for critical infrastructure projects,” May said. “Particularly now, when the credit is difficult to obtain, Congress should do everything it can to free up the markets for development projects.”

He added that if a national infrastructure bank is created, airport infrastructure projects should be included among the eligible bank participants.

Additionally, he said, the infrastructure bank, general funds, and “some kind of tax-credit bonding” could be used to accomplish a broad, ambitious upgrade of the aviation network, dubbed NextGen.

The vehicle for legislators to make an AMT exemption permanent would be the upcoming Federal Aviation Administration reauthorization bill, which has failed to be approved in both chambers for more than two years. The FAA has been funded by stopgap measures instead.

An increase in the limit on passenger facility charges that airports can tack onto airline tickets was among other requests aviation groups pushed during the hearing. The PFC provides proceeds that airports use to back bonds. The cap is currently $4.50, but the most recent FAA reauthorization bills have attempted to raise the cap to $7.

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