$5B Will Open an Abundance of Contracting Opportunities
By Mary Scott Nabers
Government contractors, as well as public officials, will be more than pleased to learn that a new category of tax-exempt private activity bonds (PABs) could become the newest tool for financing repair or construction of public buildings through public-private partnerships (P3s).
Bills have been introduced in both the U.S. House and Senate that would issue up to five billion dollars in PABs. The funds would be allocated to public officials at the state and local levels of governments. The objective would be to incentivize public officials to reach out to private-sector partners for experience, expertise and capital investment for large construction projects.
PABs are tax-exempt bonds issued by or on behalf of local or state governments. The proceeds can be used by the private-sector partner in a P3, and the government does not have to pledge its own credit. PABs are attractive because financing costs are reduced as the result of their exemption from federal taxes.
Pennsylvania Congressman Mike Kelly introduced HR 960 - the Public Buildings Renewal Act - and Senators Dean Heller of Nevada and Bill Nelson of Florida will introduce a companion bill in the Senate, both of which provide for additional PAB funding.
As with many P3 agreements, once a qualified government building is built or renovated, it will be owned by the government entity. Because there is currently no category of PABs for public buildings, the expansion of this bonding authority could also affect schools, state-supported colleges or universities, public libraries and courthouses. Health care and public safety facilities would also be included, such as government-owned hospitals and facilities for health care, labs or research. Also included would be public safety buildings such as police and fire stations.
Most public-private partnerships in the United States in the recent past have been related to transportation and major infrastructure projects, but there has been great interest is incentivizing private capital investments in public building projects. These types of projects usually carry such large price tags that they cannot attract private-sector interest without an option for the use of tax-exempt bonds.
With the current administration touting plans for up to a trillion-dollar investment in the nation's infrastructure, expanding the use of PABs to public building construction and renovation could add significantly to that investment. Rep. Kelly noted that public buildings in the U.S. are "in a historic state of disrepair and in need of a bold solution." He believes his bill to expand PABs will help alleviate some of the problems.
Many public officials, and certainly lots of construction firms, will be monitoring these two bills with extreme interest in the weeks to come.