A report recently released by the Beacon Hill Institute for Public Policy demonstrates how tax reform legislation currently being negotiated in Congress could be a catalyst for private sector funding for public building projects.
One of the key provisions would expand the use of Private Activity Bonds to authorize public buildings as an allowable use. These private activity bonds are a form of public-private partnership (also known as a P3) whereby a public entity and a private entity work together to build and maintain a public infrastructure project, allowing state and local to combine tax-exempt financing with private, taxable financing, lowering overall costs to taxpayers.
According to the press release, at a time when hundreds of billions of dollars will be needed to rebuild Puerto Rico, the U.S. Virgin Islands, Florida and Texas, the expansion of this form of bond to public buildings could provide a critical financing tool to speed the recovery effort while minimizing cost overruns and guaranteeing long-term performance without deferred maintenance. According to the Houston Independent School District, 22 of its 245 schools had extensive damage that will keep them closed for months, and about 53 have “major” damage, according to school officials.
“Private Activity Bonds for buildings are a triple win for governments, taxpayers, and the economy,” says study author David Tuerck of BHI in the press release. “Our findings show that, in the short run, every dollar of new infrastructure investment made possible by the PBRA will add $2.80 to the U.S. economy."
The pending tax reform legislation could be an opportunity to pass these expansion provisions, which were previously proposed in the Public Buildings Renewal Act (PBRA). The report details the economic benefits of the expansion, under several scenarios. If Congress were to make Private Activity Bonds readily available (without a $5 billion cap), the cost savings and economic effects would soar, generating $2.796 billion worth of new buildings, increase real GDP by $8.285 billion and create 43,200 jobs in the first year.
You can read a PDF of the entire press release by visiting http://beaconhill.org/BHIStudies/2017-1026-PubPrivInf/PressReleaseBHIPABsBuildingsStudyOct25-2017.pdf.