Beyond creation of the TIFIA credit program, the Federal government has advanced legislation to provide private developers additional access to lower cost capital through the tax-exempt bond market. As noted earlier, state DOTs and other government entities have benefitted from provisions in the Internal Revenue Code (the Code) permitting municipalities to borrow funds in the capital bond market on a tax-exempt basis to finance public works projects.
Generally, the private sector is precluded from borrowing funds in the tax-exempt market. However, there are certain qualified exceptions listed in the Code for which private entities may borrow funds in the tax- exempt capital market to finance projects that serve a public purpose such as hospitals and housing through the sale of Private Activity Bonds (PABs). It was not until 2005 however, with the passage of the Safe Accountable, Flexible, Efficient, Transportation Equity Act: A Legacy for Users (SAFETEA-LU) that the Code was amended to add highways and freight transfer facilities to the list of privately developed and operated projects for which PABs may be issued.
SAFETEA-LU limited the total amount of PABs for highway purposes to $15 billion. Typically issuance of non-highway, qualifying facility PABs is managed according to individual state volume caps. For highway projects, the $15 billion authorization is not subject to any state's PAB volume cap, but instead is allocated to qualifying projects by the Secretary of Transportation. About half of the P3 projects reviewed in this Report on P3s (and nearly all since its introduction) have included PABs as part of the financial package, often in combination with TIFIA assistance. The first such project was the I-495 Capital Beltway HOT Lanes project in 2007.