House group calls for expansion of private activity bonds

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WASHINGTON – The Problem Solvers Caucus, a bipartisan group of House lawmakers, released a report late Wednesday that recommends raising the state volume caps for all private activity bonds used to help finance infrastructure projects.

The 12-page report, called Rebuilding America’s Infrastructure, also recommended increasing funding for federal grant programs, modernizing and indexing fuels taxes, increasing funding for clean water and drinking water state revolving funds, and encouraging the use of public-private partnerships for infrastructure projects.

The nation’s infrastructure includes a network of nearly nine million miles of roads, 160,000 public water systems, 5.5 million of local electrical distribution lines and almost 90 million fixed broadband subscribers, a caucus task force said in the report.

The funding gap for maintaining and building this network may be as high as $2 trillion by 2025, they said.

“By modernizing existing user fees, incentivizing private innovation and investment through public private partnerships, making smarter investments with limited federal dollars, and increasing accountability to taxpayers, this task force believes we can build a 21st Century infrastructure network that will foster a truly 21st Century economy that works for every single American.”

In a section of the report called “General Reforms,” the task force said Congress must provide stable, long-term, sustainable funding for infrastructure.

This should include preserving and expanding tax-advantaged infrastructure financing options “by maintaining the federal tax-exempt status for municipal bonds and private activity bonds as well as increasing the [PAB] state volume cap for all infrastructure categories.”

Under the federal tax law, tax-exempt private activity bonds can be used to finance airport facilities, docks, wharves, mass commuting facilities, solid waste disposal and water and sewer projects, local gas and electric facilities, high-speed intercity rail projects, highways and freight transfer facilities.

The recommendations follow efforts by House lawmakers, in tax reform legislation, to terminate new tax-exempt PABs at the end of 2017. But Senators wanted to preserve these bonds and prevailed in the final bill that was signed into law in December.

The report said states should be incentivized to adopt legislation to enable public-private partnerships for infrastructure projects, while recognizing that private investment is just one tool and cannot alone fill the funding gap.

The task force also recommended increased support for, and expansion of, competitive grant programs such as those authorized under the

Transportation Infrastructure Finance and Innovation Act (TIFIA) and Water Infrastructure Finance and Innovation Act (WIFIA). It said that these and other federal financing programs should expand eligibility criteria and encourage more small system applications in rural areas.

Grant and other federal funding programs should have set-asides for rural communities, the report said, adding that a rural liaison should be designated within each federal agency that deals with infrastructure to provide technical assistance and help to rural communities.

The task force said WIFIA and TIFIA grant programs have proven track records and that every dollar they provide in federal loan assistance leverages up to $40 in total public and private investment “making them one of the best multipliers in government.”

It also recommended changes in budget scoring so that actual losses to the government are recognized instead of the current assumed average of loss of 10%.

“In reality, the federal government is expected to receive 99.9 percent of TIFIA loans back based on years of successful performance by the program,” the report said. “Currently, the discrepancy between the assumed average loss and the actual loss causes these programs to have a higher budget cost than needed.”

The report said that while state and local governments provide about 75% of funding for all transportation and infrastructure, “federal participation plays a vital role in providing the revenue and additional financing tools” they need.

Historically, the federal government has paid its share of costs through the Highway Trust Fund, which is primarily funded through gasoline and other federal fuels taxes. However, HTF outflows to states fell below the tax revenues funding it for the first time in 2008 and have declined further ever since.

The reasons for the decline , the report said, is that the 18.4 cents/gallon federal gasoline tax has not been increased since 1993, the fuels taxes have not been indexed to inflation or fuel economy standards, and technological changes and federal fuel economy standards have further reduced revenue to the HTF.

As a result, Congress has been supplementing the HTF since 2008 with about $140 billion in transfers from the U.S. Treasury general fund and other federal funds.

“According to the American Society of Civil Engineers, the failure to properly address this problem now will cost families $1060 per year in lost disposable income and will suppress the growth of our [gross domestic product] by $897 billion by the year 2020,” the report said.

The task force said fuels fees should be modernized, adjusted, and indexed to some combination of Inflation, the Consumer Price Index, the National Highway Construction Cost Index, and the National Highway Construction Cost Index.

Alternative user fees that take into account changes in technology and mobility use, and equitably distribute the costs of maintaining and constructing transportation infrastructure, should be considered, the report said. Pilot programs should be set up to transition to a mileage-based user fee system, it said.

The Transportation Construction Coalition said it agrees with the report’s recommendation on the HTF.

”A permanent [HTF] revenue solution to support increased surface transportation investment must be the foundation of any infrastructure package,” the TCC said.


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