How the House tax plan could kill Trump's infrastructure plans
© Getty Images
 
House Republicans’ new tax plan would destroy any remaining hope the Trump administration has of delivering on the president’s promise of $1 trillion in infrastructure spending because the House Ways and Means Committee’s proposal makes the major mistake of killing private activity bonds for transportation projects. These bonds are a required part of most infrastructure projects built using public-private partnerships, so killing them will destabilize bond markets and derail infrastructure projects across the country. 
 
Private activity bonds allow U.S. municipalities to issue public muni bonds to finance construction of projects serving the public interest, like highways and schools. These muni bonds are exempt from federal taxes and, in some cases, from state and local taxes. 
 
ADVERTISEMENT
To help encourage investment in needed infrastructure, the 2005 federal surface transportation reauthorization bill, SAFETEA-LU, authorized $15 billion in tax-exempt bonds for public-private partnership transportation projects. The program has provided $8.5 billion in financing authority to 17 projects, with several others in the pipeline. 
 
Congress doesn’t have to venture very far to see the benefits of public activity bonds (PABs). The reconstruction and widening of I-66 in Virginia received $946 million in private activity bonds. The $1 million reconstruction of I-95 managed lanes in Virginia, including extending the lanes to Stafford County and widening of the lanes in Fairfax County, required $253 million in PABs. The $2 billion reconstruction of I-495 in Virginia, including the addition of four express toll lanes, used $589 million in public activity bonds.  Without PABs that project would not have been viable as a public-private partnership and thus would have taken Virginia 10-to-20 additional years just come up with the money to build it. 
 
In terms of serving the public interest, these projects have reduced traffic congestion and allowed mass transit agencies to provide new dedicated bus service in the corridors. The accident and fatality rates on the roadways have declined. Faster, consistent travel speeds have also reduced greenhouse gas emissions during rush hour travel periods.  But if the House bill becomes law, many planned infrastructure projects like these will have to be postponed or abandoned.  
 
In the DC suburbs, for example, the Maryland Highway Administration is planning to build a network of express toll lanes on I-270, I-495 and the Baltimore-Washington Parkway. These lanes would be built using public-private partnerships and public activity bonds. 
 
The Senate's tax bill doesn't contain a similar provision, so, presumably, the House GOP’s clunky attack on these bonds comes from misinformation or is a mistake aimed at sports stadiums. Some PABs have come under fire for financing the construction of sports stadiums. For instance, the renovation of Yankee Stadium in New York used $1.1 billion of tax-exempt bonds and the renovation of Soldier Field for the Chicago Bears relied on $533 million in such bonds.  The financial benefits from many sports stadiums often go to the teams’ wealthy owners, not taxpayers.  As a result, researchers across the political aisle agree that eliminating favorable tax treatment for the construction of sports stadiums would be good public policy. 
 
However, Republicans haven’t surgically targeted subsidies for sports stadiums. They’ve attacked transportation projects — roadways and mass transit lines that clearly serve the public. The Ways and Means Committee seems to incorrectly assume that if public-private infrastructure projects no longer have access to tax-exempt bonds, they’ll just be built using costlier taxable bonds. However, there are several reasons why this would not be the case. 
 
First, consider the fate of a toll road in urban Virginia as an example. Without PABs, higher interest costs for builders of the highway would mean higher toll rates being charged to drivers. But higher tolls would mean that fewer drivers would be projected to use the road, resulting in lower projected revenues. The lower income estimates might cause lenders to view the projects as too risky or road builders to view the road as unsustainable, causing them to ditch it. 
 
The Ways and Means Committee made a mistake when it proposed eliminating equal tax treatment for private activity bonds. It needs to protect this valued tool for building infrastructure. If they don’t, they’ll have to tell the public that they’ve killed a key method to pay for President Trump’s infrastructure promises. 
 
Baruch Feigenbaum is assistant director of transportation policy at Reason Foundation a non-profit think tank.