New Category of Exempt Facilities. Section 1143 of Title XI of the Act creates a new category of exempt facilities for which private activity bonds may be issued --"qualified highway or surface freight transfer facilities." This new category includes:
(1) any surface transportation project receiving Title 23 funds;
(2) a project for an international bridge or tunnel for which an international entity authorized under Federal or State law is responsible and which receives Title 23 funds; and
(3) facilities for the transfer of freight from truck to rail or rail to truck (including any temporary storage facilities directly related to such transfers) which receives Federal assistance under Title 23 or Title 49.
Because private activity bonds are limited to projects that otherwise receive federal assistance, projects using private activity bonds will be subject to requirements such as Davis-Bacon prevailing wage rates, Buy America and Federal-aid procurement requirements. However, the summary of the tax provisions provided by the House Committee on Ways and Means notes that "the provision is not intended to expand the scope of any federal requirement beyond its application under present law and does not broaden the application of any federal requirement under present law in Title 49."
Cap on PABS. The Act includes a $15 billion cap on PABs, but does not include separate annual limitations. (These bonds are exempt from the state-wide caps that are applicable to many other categories of private activity bonds.) The $15 billion cap does not apply to current refundings of qualified highway and surface freight transfer bonds, if "(A) the average maturity date of the issue of which the refunding bond is a part is not later than the average maturity date of the bonds to be refunded by such issue, (B) the amount of the refunding bond does not exceed the outstanding amount of the refunded bond, and (C) the refunded bond is redeemed not later than 90 days after the date of the issuance of the refunding bond." (Subsection (b)(4) of Section Section 1143).
The Secretary of Transportation has discretion to allocate the $15 billion allotment among qualified highway or surface freight transfer facilities in such manner as the Secretary determines appropriate.
Impact on Public-Private Partnerships. Access to lower-cost bond financing should permit much greater private sector investment and risk taking in highway projects and lower the cost of financing freight intermodal projects. Prior to enactment of these changes, the private sector was generally limited to assisting in the development stage of projects (with its investment reimbursed upon issuance of the bonds), supplying design-build services or providing operations and maintenance services under contracts that comply with rigid IRS management contract rules. It should be noted that a private entity cannot directly issue PABs; a governmental "conduit" bond issuer is still required.
While it is unlikely that PABs could be accessed to finance the acquisition of existing transportation facilities by a private entity, PABs could be used to finance improvements and extensions on facilities leased to private concessionaires.