by Andrew Ausel | June 8, 2016
To assist with private investment in our nation’s aging and dilapidated public builds, a new bill has been introduced in the U.S. House of Representatives that would facilitate important public-private partnerships in this arena.
While Public-Private Partnerships (P3s) have been all over the news for the past few years as a potential solution for depleted capital improvement budgets, in practice they have been largely limited to the transportation sector. This is for a number of reasons, but among them is the fact that tax-exempt facility bonds are not widely available. In response to this problem and to specifically tackle the challenge of social Infrastructure replacement, Congressman Mike Kelly (PA-03) has introduced H.R. 5361 making tax-exempt facility bonds available to schools, public hospitals, justice facilities, universities, police and fire stations.
What is a tax-exempt facility bond? It is a mechanism for funding that owners use to borrow from anyone interested in buying the debt of the project. The bonds are issued by an owner and bought by banks, citizens, or pension funds for example, and in, say 30 years, the purchaser of the bond gets a payout of the amount they originally paid, plus interest.
But the key for the private financier lies in the tax exempt status of these bonds. Complete private financing of any project is risky and generally dependent on what type of immediate revenue the facility can generate (not generally a defining characteristic of, for example, an elementary school). P3s are traditionally large projects that carry hefty price tags, so the benefit of financing a major share of the project tax-free is a boon for private investment and can be a major selling point for spending large sums of money on a public building or road.
Projects across the country are routinely cancelled due to the cost of financing without these bonds. Projects such as the Indianapolis Justice Complex, Yonkers School Program, New York State Department of Health Laboratory, Travis County Courthouse Project (TX), and the Cook County Hospital Project (IL) are among the most notable. In fact since 2008, only one U.S. building project has utilized a P3 according to the Performance Based Building Coalition (PBBC). While, in the transportation sector, which is authorized to utilize tax-free financing, over $18 billion in P3 projects have been undertaken in the same time with a cost savings of nearly $5 billion.
This legislation is being championed by the entire infrastructure and P3 industry through the leadership of the Performance Based Building Coalition. The PBBC includes over 70 firms and public officials nationally. DBIA has joined this coalition and believes H.R. 5361 can serve a crucial role in addressing our crumbling schools and other public buildings. We will be watching this legislation closely as it moves through the process. The bill currently resides in the House Committee on Ways and Means, chaired by Congressman Kevin Brady (R-TX).