Thursday, October 26, 2017

Private Activity Bonds for Buildings Would Create Jobs, Fast Track Construction, and Save Taxpayers Money

In Wake of Hurricanes in TX, FL, PR and VI, new PABS Could Leverage Private Sector Funds to Speed Rebuilding of Gov’t Buildings and Schools

BOSTON, MA— The economic and fiscal benefits of the proposed Public Building Renewal Act (PBRA) could save taxpayers billions while adding billions more to the economy if Congress decides to unlock the proven benefits of Private Activity Bonds for government buildings. That’s the bottom line of a new study released today from The Beacon Hill Institute (BHI) for Public Policy, which conducted an exhaustive economic analysis of the short- and long-term benefits of P3s for addressing an increasingly challenging public policy issue facing state and local governments. 

“Private Activity Bonds for buildings are a triple win for governments, taxpayers, and the economy,” said study author David Tuerck of BHI. “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.  At the same time, taxpayers save nearly 25 percent over the life of these projects compared to traditional building methods, while these projects are delivered on time with guaranteed long-term performance”. 

These Private Activity Bonds would be utilized through a public-private partnership (P3) for a government building project.  A P3 is an arrangement under which a public entity and a private entity work together to build and maintain a public infrastructure project, such as a courthouse or a public library or schools.  Presently, the use of P3s in the U.S. to develop public buildings is limited because, unlike transportation infrastructure projects, public buildings are not currently eligible for private activity bonds. This unnecessary impediment prevents public building P3s from combining tax-exempt financing with private, taxable financing, resulting in an increased cost of financing that is passed on to our state and local governments. 

The Public Buildings Renewal Act (PBRA), introduced by U.S. Senators Dean Heller (R-Nev.) and Bill Nelson (D-FL) and U.S. Representatives Mike Kelly (R-PA) and Earl Blumenauer (D-OR), would allow state and local governments to use up to $5 billion of tax exempt bonds for P3s to construct and renovate public buildings.  The Joint Committee on Taxation scored this legislation, estimating a low cost of $18 million over five years and $48 million over 10 years.  

The pending tax reform legislation could be an opportunity to pass PBRA, which currently enjoys significant bipartisan support from the Ways and Means and Senate Finance Committees.

At a time when hundreds of billions will be needed to rebuild Puerto Rico, US Virgin Islands, Florida and Texas, PBRA 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. 

Further, if Congress were to make Private Activity Bonds readily available (without a $5 billion cap as proposed in the PBRA), the cost savings and economic effects would soar. Under this scenario, BHI researchers assumed that P3s would expand to 20 percent of all applicable state and local government building, and generate $2.796 billion worth of new buildings.  Under this scenario, expanding Private Activity Bonds would increase real GDP by $8.285 billion and create 43,200 jobs in the first year.  The increase in economic activity would increase federal and state income tax collections by $860 million in the first year.   

Furthermore, the economic effects are cumulative over time as tax-exempt P3s increase the quantity and quality of the public infrastructure.  In ten years, the expansion of P3 projects would: 

  •  increase public buildings by $85.90 billion
  •  create 32,400 jobs
  •  increase real GDP by $8.06 billion
  •  increase federal personal income tax receipts by $643 million
  •  increase state personal income tax receipts by $146 million

Congressman Mike Kelly (R-PA), lead House sponsor of PBRA, noted, “This new study confirms what so many have been saying all along: the Public Buildings Renewal Act is a win-win-win for American infrastructure, jobs, and taxpayers. I expect many more members of Congress to see this report and join the bipartisan effort to unleash the power of Private Activity Bonds to help solve our nation’s public infrastructure crisis. We have a real chance to repair countless schools, hospitals, courthouses, and more, while reviving our local economies. We can’t afford to let this opportunity slip away.” 

Senator Dean Heller, lead Senate sponsor of PBRA, remarked that, “Now is the time to use the success of P3s in the infrastructure sector as a financing model for repairing our public buildings and other cornerstones of our communities, particularly public schools and libraries. By empowering the private sector, this commonsense idea spurs innovation and will ultimately allow our country’s public schools and universities? to do even more, including save money. I’ll continue to urge my colleagues to support my Public Buildings Renewal Act so that Nevada and Americans around the country can benefit from the impact P3 investment has on our local economies.”

The complete study is available here.

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