Tax-exempt private activity bonds can now boldly go where no such bonds have gone before thanks to a One Big Beautiful Bill provision allowing their use for spaceport projects, but it's unclear at this stage whether spaceport PABs will take off as a financing vehicle.
"I believe it's still too early to tell," Johnny Hutchinson, a partner at law firm Nixon Peabody, said via email Tuesday when asked what kind of uptake he expected for spaceport PABs. "That said, the spaceport PAB statute doesn't have some of the roadblocks of earlier PAB programs."
In a July 25
President Donald Trump signed the OBBBA into law on July 4.
"I think the spaceport part probably came as a surprise, so issuers and potential private partners are probably still evaluating development opportunities and projects that were already in the pipeline to see if they might qualify for financing under the spaceport PAB program," Hutchinson said Tuesday.
The spaceport PAB statute was crafted in a way that's likely to appeal to the tax-exempt bond market, he said in the article. When it comes to a muni bond bill, "there are principles for drafting that tend to appeal to the tax-exempt bond market, which values consistency and proven concepts over novelty and abhors the reinvention of the wheel," Hutchinson's article said.
"Programs that introduce too many new concepts, use vague language, or try to 'do too much' risk rejection by the market," the article said. "For example, broadband PABs or carbon capture PABs were created in the 2021 infrastructure law. However, few, if any, have been issued, in part, because they did not stick to these drafting principles."
The OBBBA's spaceport PAB provisions, "are tethered to the existing airport PAB provisions, which have deep roots in the law," according to the article, which described the "anchoring" of the spaceport bond provisions in the existing airport bond provisions as a "market-favorable move."
"This clarity enables issuers, borrowers, and underwriters to strategize with confidence as they begin to structure transactions," Hutchinson's article said.
Like airport PABs, spaceport PABs are subject to a governmental ownership requirement, the article said, adding that "as with airport PABs, the federal government doesn't satisfy the requirement—it must be a state or local government."
However, the safe harbor rules that permit limited leases of property financed with airport PABs apply also to spaceport property, the article said.
That means a private operator could lease a spaceport financed with spaceport PABs provided the operator agrees not to claim federal depreciation deductions or tax credits for the property, the lease term isn't more than 80% of the property's reasonably expected economic life and the private operator doesn't have an option to buy the property "other than at fair market value determined on the exercise date," according to the article.
Tax-exempt PABs would likely offer lower-cost financing for spaceport projects than either taxable debt or equity, Hutchinson said Tuesday when asked about the potential pros and cons of using spaceport PABs.
"The trade-off is that tax-exempt PAB financing for spaceports is probably cheaper, but you have to give up other economic and tax benefits to use it," he said. "Equity financing is probably more expensive, but the private operator gets to keep the economic and tax 'upside' on the project."
Scott McLaughlin serves as executive director of the New Mexico Spaceport Authority, which manages Spaceport America, a Federal Aviation Administration-licensed launch complex in southern New Mexico.
Spaceport America, which has Virgin Galactic as its anchor tenant, is owned and operated by the State of New Mexico.
"Allowing tax-exempt financing for spaceport infrastructure is a win-win for everyone," McLaughlin said in a statement Tuesday. "Spaceport America looks forward to how the new tool will help us get to orbital launch capability."
