Congress must preserve private bonds to pay for infrastructure

President Trump and members of Congress from both parties have made it clear they take very seriously the important task of improving and strengthening our nation’s infrastructure. It is an essential undertaking and one that the nation expects to follow tax reform. For this reason, it is vital that Congress preserve an important vehicle for harnessing private investment into our nation’s aging infrastructure.

Private activity bonds are tax-exempt bonds issued for a project that serves a public good and is built with private funds. They can be used to finance construction or improvements to roads, water sewage systems, airports, affordable housing, hospitals, schools and many other projects that serve the public.

{mosads}The House eliminated tax-exempt private activity bonds in its bill, while the Senate version maintains them. It is absolutely crucial to our nation’s future prosperity, growth and basic safety that private activity bonds are saved. They are an invaluable incentive for private investors and entities to finance infrastructure that might otherwise be too expensive for them to build.

In announcing his $1 trillion infrastructure plan earlier this year, the president himself expressed the desire to leverage private investment to help pay for the enormous needs that exist throughout the country. Private activity bonds are a perfect example of smart government policy that taps into the enormous resources of the private sector to the direct benefit of citizens. They make up 20 percent of the $3.7 trillion municipal bond market, driving private capital to fund public infrastructure.

If Congress were to eliminate private activity bonds, we would see a marked slowdown in the construction of affordable housing, hospitals and health clinics, airport expansions and renovations, toll roads and a host of other facilities essential to our quality of life. In the absence of private activity bonds, such privately-funded projects would require taxable, higher-interest rate borrowing, which would doom many of them before they got off the ground.

The Bipartisan Policy Center estimates that America faces $2 trillion in infrastructure needs, including $134 billion in drinking and wastewater needs and $126 billion for airports. Those estimates don’t even take into account the water crisis in Flint or the devastation caused by the hurricanes this past summer and the wildfires that have ravaged California.

In New York City, $10 billion in tax-exempt bonds over a four-year period leveraged over $27 billion in investment in affordable housing, supporting 140,000 jobs and housing for 170,000 people. The city estimated the loss of private activity bonds would eliminate $2.6 billion annually in funding for affordable housing. In Oregon, the loss of private activity bonds would cause the state to shut down its Facilities Authority, which finances primarily healthcare facilities and schools, according to the state treasurer.

The majority of infrastructure spending is done at the local and state level, where governments face enormous fiscal pressures to keep the tax burden on their citizens low while balancing their budgets. In the face of these pressures, policy makers need to encourage solutions that can not only leverage private dollars to build, improve and create new public infrastructure but save money for taxpayers in the process.

The city of Phoenix partnered with the private sector to design and build a water treatment plant that serves 400,000 homes and saved the city $30 million. When we talk about the need for the government and the private sector to work together to increase efficiencies, lower costs and serve the needs of the public, this is precisely the type of project we ought to use as a model.

Both the House and the Senate have already voted to do away with advance refunding bonds, which allow issuers, including local governments, to refinance bonds on a tax-exempt basis more than 90 days before the debt can be bought back, taking advantage of lower interest rates.

Advance refunding lowers the cost of investing in infrastructure for state and local governments and allows them to take advantage of reductions in interest rates to save money. Cash-strapped state and local governments need to seize every opportunity to trim costs, so they have the resources to invest in the backlog of infrastructure needs they face. At the very least, Congress should allow for a transition period so that advance refunding bonds are not simply eliminated at year’s end.

Both advance refunding bonds and private activity bonds are among the best tools we have to address American infrastructure problems that virtually everyone agrees need to be solved. It seems nearly certain Congress is going to eliminate advance refunding bonds. It is therefore even more critical for our country that the conferees save private activity bonds.

Henry Cisneros served as secretary of the U.S. Department of Housing and Urban Development under President Clinton. He is a partner at the infrastructure finance firm Siebert Cisneros Shank & Company.