2114 Kanawha Boulevard East ● Charleston, WV 25311
(304) 342-1166 ● (304) 342-1074 FAX ● www.cawv.org
LEGISLATIVE POSITION PAPER
AMENDING THE IRS CODE TO REMOVE THE VOLUME
CAP ON PRIVATE ACTIVITY BONDS FOR WATER
AND WASTEWATER INFRASTRUCTURE
ISSUE
H.R. 1802 and
S. 939, would
create jobs by
leveraging
private sector
dollars to support
our most essential
needs: Water and
wastewater.
Amending the IRS
Code (26USC 146)
to remove the cap
would make the
PAB program
more effective and
allow local communities to leverage
private capital
markets in
combination with
other financial
mechanisms to
finance water and
wastewater
infrastructure
projects.
BACKGROUND
Private Activity Bonds (PABs) can be an important tool for financing infrastructure investments in
our communities by providing long-term financing for capital-intensive infrastructure projects. Private Activity Bonds are a form of tax-exempt financing available for entities like state or municipal
governments that want to partner with a private party to meet a public need. Congress controls the
total volume of tax-exempt bonds by limiting issuance in each state with an annual cap - for example,
in 2011 the volume cap for a state was the greater of either $95 per resident, or $277.82 million.
H.R. 1802 and S. 939, are important because:
$500 Billion Gap Exists Between Needs and Funds. Cities, towns and utilities face a major challenge over the next several decades replacing aging and worn-out water infrastructure. The situation
is the result of some unfortunate timing; many different generations of water infrastructure put in
service over the last hundred years are all coming to the end of their useful lives at about the same
time. Multiple public and private studies show that water infrastructure needs at more than $500
billion over a 20-year period. This need is far outpacing funding. In fact, the trend over the past few
decades has been a decrease in federal funding, shifting the burden to state and local governments.
Removing the Cap Allows State and Local Governments to Leverage Private Dollars. Interest
paid on bonds issued by state and local governments generally is excluded from gross income for
Federal income tax purposes, which generally allows the interest rates on such bonds to be lower.
This, in turn, lowers the borrowing costs for the beneficiaries of such financing.
Encourages Public-Private Partnerships. PABs employ the best features of successful publicprivate partnerships, spreading risk and encouraging innovation. By reducing a government's project
management burdens and its risk (with PABs, the private entity assumes much of the financial risk
and administrative responsibility), multi-year projects and a broader project load become more feasible as the government has more resources to allocate. Also, PABs do not affect the municipality's
bond rating, an important benefit of PABs for municipalities.
Precedent Exists. Exceptions from the volume cap are currently provided for other governmentally
owned facilities such as airports, ports, high-speed intercity rail and solid waste disposal sites.
CAWV POSITION
H.R. 1802 and S. 939 amends the IRS code of 1986 to provide that the volume cap for Private
Activity Bonds shall not apply to bonds for facilities for the furnishing of water and sewage facilities.
CAWV urges West Virginia’s delegation to support this jobs creating legislation. Rep. Rahall is a cosponsor of H.R. 1802.
CAWV Congressional Fly-In, May 31, 2012
PrivateActivityBondVolumeCap
SupportAmendingtheInternalRevenueCodetoRemovetheVolumeCaponPrivate
ActivityBondsforWaterandWastewaterInfrastructure
Background:
 Private activity bonds (PABs) can be an important tool for financing infrastructure investments in our communities providing long‐term financing for capital‐intensive infrastructure projects. Private Activity Bonds are a form of tax‐
exempt financing available for entities like state or municipal governments that want to partner with a private party to meet a public need. Congress controls the total volume of tax‐exempt bonds by limiting issuance in each state with an annual cap ‐ for example, in 2010 the volume cap for a state was the greater of either $90 per resident, or $273.8 million. AGCMessage:
 Gap Exists Between Needs and Funds. Cities, towns and utilities face a major challenge over the next several decades replacing aging and worn‐out water infrastructure. The situation is the result of some unfortunate timing; many different generations of water infrastructure put in service over the last hundred years are all coming to the end of their useful lives at about the same time. Multiple public and private studies show that water infrastructure needs range between $400 and $600 billion over a 20‐year period. This need is far outpacing funding. In fact, the trend over the past few decades has been a decrease in Federal funding, shifting the burden to State and local governments.  Removing the Cap Allows State and Local Governments to Leverage Private Dollars. Interest paid on bonds issued by State and local governments generally is excluded from gross income for Federal income tax purposes, which generally allows the interest rates on such bonds to be lower. This, in turn, lowers the borrowing costs for the beneficiaries of such financing.  Encourages Public‐Private Partnerships. PABs employ the best features of successful public‐private partnerships, spreading risk and encouraging innovation. By reducing a government's project management burdens and its risk (with PABs, the private entity assumes much of the financial risk and administrative responsibility), multi‐year projects and a broader project load become more feasible as the government has more resources to allocate. Also, PABs do not affect the municipality's bond rating, an important benefit of PABs for municipalities.  Precedent Exists. Exceptions from the volume cap are currently provided for other governmentally owned facilities such as airports, ports, high‐speed intercity rail, and solid waste disposal sites. AGCSupportedLegislation:
 H.R 1802, S. 939 ‐ the Sustainable Water Infrastructure Investment Act of 2011 
Amends the Internal Revenue Code of 1986 to provide that the volume cap for private activity bonds shall not apply to bonds for facilities for the furnishing of water and sewage facilities. 
Removing the cap would make the PAB program far more effective in stimulating the critically needed financing of water and wastewater projects across the nation. Both bills would allow local communities to leverage private capital markets in combination with other financial mechanisms to finance water and wastewater infrastructure projects. For more information contact Scott Berry at (703) 837‐5321 or [email protected] September 01, 2011