By Joshua Claybourn
President Trump’s proposed budget, released last month, includes an expansion of the Transportation Department’s private activity bond program (“PAB”) which should help projects using public-private partnerships (“P3”). The PAB program allows the Department of Transportation to allocate authority to issue tax-exempt bonds on behalf of private entities constructing highway and freight transfer facilities.
“The administration’s goal is to seek long-term reforms on how infrastructure projects are regulated, funded, delivered and maintained,” the White House said in a fact sheet. “Providing more federal funding, on its own, is not the solution to our infrastructure challenges.”
Lifting the Cap on PABs
Current law places a $15 billion cap on PABs and directs the Secretary of Transportation to allocate this amount among qualified facilities. Under the Trump administration’s budget proposal, this cap would be lifted to allow more financing for P3s.
According to the administration’s fact sheet, it recommends removing the cap “to ensure that future P3 projects can take advantage of this cost-saving tool, and encourage more project sponsors to take advantage of this tool.”
Passage of the private activity bond legislation would reflect the federal government’s desire to increase private sector investment in U.S. transportation infrastructure. Providing private developers and operators with access to tax-exempt interest rates lowers the cost of capital significantly, enhancing investment prospects. Increasing the involvement of private investors in highway and freight projects generates new sources of money, ideas, and efficiency.
The administration’s budget proposal requests that PAB eligibility be expanded to allow states to use tolls beyond interstate highways. The administration also recommended expanding the Transportation Infrastructure Finance and Innovation Act, or TIFIA, loan program, which helps finance surface transportation projects through direct loans, loan guarantees, and lines of credit. The administration’s budget would increase funding for TIFIA to $1 billion annually for 10 years and expand program eligibility guidelines. One dollar of TIFIA subsidy leverages about $40 in other investment, according to the administration’s fact sheet.
The budget proposal also calls for the U.S. to sell certain power transmission assets, including lines, towers and substations, and to impose a fee for commercial use of inland waterways. Many states will also be pleased by the administration’s call for reducing restrictions on states from tolling existing interstate highways. The ability to toll can create streams of revenue needed to attract private investment for building or maintaining roads.
The president’s budget is just a recommendation, and congressional leaders have already said they won’t necessarily defer to his suggestions, but the budget blueprint will help set the tone and serve as a guidepost for future legislation.
Joshua Claybourn is an attorney with Jackson Kelly PLLC’s office in Evansville, Ind. He advises clients in matters of business and corporate law, governmental services, and public finance. He can be reached at jclaybourn@JacksonKelly.com.