Column: Private Activity Bonds repeal — The true cost of tax reform
The Tax Cuts and Jobs Act approved by the House terminates the authority to issue tax-exempt Private Activity Bonds (PAB). The Senate tax bill enacted Dec. 2 does not include a repeal of PAB authority. The House estimates that repeal would generate $40 billion in tax revenues over 10 years. However, it will cost all of us far more because it impairs a critical component of interdependent federal and state policies and programs that leverage private investment to support, among other things, the development and financing of affordable rental housing and the needs of those served by Section 501(c)(3) organizations.
Interest on PAB is excludable from gross income of the owner of the PAB. That exemption was intended to be and has been used to help finance eligible projects, many of which would not have been undertaken without the reduced interest cost resulting from lower rates on PAB. For Section 501(c)(3) organizations, no PAB means interest expense on their projects will increase by at least 30 percent. Most Section 501(c)(3) borrowers must renegotiate the interest rate on their debt every five to seven years.
The consequences of the repeal are more costly new projects and higher interest expense on existing debt. In a letter to Congress, the American Council of Education estimated that higher borrowing costs from the repeal of PAB can result in diminished investments in infrastructure, fewer jobs, reduced services and increased service charges and other fees to students.
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