Private Activity Bonds: An Analysis of State Use, 2001 to 2006

Congressional research reportApr 25, 2008

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Order Code RL34159

Private Activity Bonds: An Analysis of State Use,

2001 to 2006

Updated April 25, 2008

Steven Maguire

Specialist in Public Finance

Government and Finance Division

Heather Durkin Negley

Information Research Specialist

Knowledge Services Group

Private Activity Bonds: An Analysis of State Use,

2001 to 2006

Summary

State and local governments often issue debt instruments in exchange for the use

of individuals’ and businesses’ savings. This debt obligates state and local

governments to make interest payments for the use of these savings and to repay, at

some time in the future, the amount borrowed. State and local governments finance

capital facilities with debt rather than out of current tax revenue in order to match the

time pattern of benefits from these capital facilities with the time pattern of tax

payments.

The federal government subsidizes the cost of most state and local debt by

excluding the interest income from federal income taxation. This tax exemption of

interest income is granted because it is believed that state and local capital facilities

will be under-provided if state and local taxpayers have to pay the full cost.

Generally, state and local governments issue two types of tax-exempt bonds:

(1) governmental bonds and (2) private activity bonds. A portion of private activity

bonds are subject to a federally legislated state-specific annual limit. The annual

limit for each state is the greater of (1) state population from the previous year

multiplied by an inflation adjusted dollar amount ($85 in 2008); or (2) an inflation

adjusted annual minimum ($262.095 million in 2008). Most private activity bond

volume (62.4%), however, is not subject to the state volume cap. This report

identifies how each state, over the previous several years, has allocated private

activity bond volume, including abandoned volume capacity.

The report also discusses the expansion of the types of projects eligible for

private activity bond financing since 2001. Approximately $55 billion in new private

activity bond volume has been created by Congress since 2001. A series of estimates

by the Joint Committee on Taxation suggests that the new bonds would reduce

federal tax revenue by as much as $5.6 billion. In the 110th Congress, various new

proposals would further expand the types of private activities eligible for tax-exempt

financing and modify the rules for existing qualified private activities. A selected

group of legislative proposals are listed and summarized in this report including the

proposed additional $10 billion in private activity bond capacity for housing.

For more on tax-exempt bonds generally and private activity bonds specifically,

see CRS Report RL30638, Tax-Exempt Bonds: A Description of State and Local

Government Debt, by Steven Maguire, and CRS Report RL31457, Private Activity

Bonds: An Introduction, by Steven Maguire. For more on tax credit bonds, see CRS

Report RS20606, Tax Credit Bonds: A Brief Explanation, by Steven Maguire. This

report will be updated when new data become available.

Contents

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Governmental Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Private Activity Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Use of Private Activity Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Private Activity Bond Issuance by State . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

The Volume Cap on Private Activity Bonds . . . . . . . . . . . . . . . . . . . . . . . . . 7

Private Activity Bonds Subject to Volume Cap by State . . . . . . . . . . . . . . . . 9

Selected Private Activity Bond Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Housing Related Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Economic Development Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Infrastructure Investment Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Environmental and Conservation Proposals . . . . . . . . . . . . . . . . . . . . . . . . 16

Other Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

List of Tables

Table 1. New Money, Private Activity Bond Volume,

by Activity and State, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Table 2. State Private Activity Bond Annual Volume Limits, 2001 to 2008 . . . . 7

Table 3. New Private Activity Bond Volume Created Since 2001 . . . . . . . . . . . . 8

Table 4. Comparison of IRS and Bond Buyer Private Activity Bond Data,

by State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Table 5. State Use of Private Activity Bond Volume Cap, 2001 to 2006 . . . . . . 12

Table 6. State Use of Private Activity Bond Volume Cap as Percent of Total,

2001 to 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Private Activity Bonds: An Analysis of State

Use, 2001 to 2006

Overview

Observers of the bond market group tax-exempt state and local government

bonds into two broad categories: governmental and private activity.1 Broadly

speaking, Congress limits the use of tax-exempt private activity bonds (PABs) to

selected activities. Recently, the opportunity to issue PABs has expanded as

Congress has increased the range of projects and activities that qualify for tax-exempt

status. This report focuses on state use of private activity bonds and the recently

added activities eligible for tax-exempt financing. Approximately $55 billion of

additional capacity has been added since 2001. In separate estimates, the Joint

Committee on Taxation (JCT) projected that these new provisions would reduce

federal tax revenue by approximately $5.6 billion over a 10-year period.2

In the 110th Congress, several legislative proposals have been introduced that

would likely expand the volume of private activity bonds including housing stimulus

legislation that would increase housing PAB volume by $10 billion (H.R. 5720 and

H.R. 3221). The next section describes governmental and private activity bonds in

more depth and is followed by a presentation of recently published bond data. The

last section discusses legislation.

Governmental Bonds

Governmental bonds are issued by state and local governments to finance

governmental activities and public infrastructure construction such as roads,

courthouses, and schools. The bonds are tax-exempt, meaning the holder does not

have to pay income taxes on the interest income earned on the bonds. There is no

federal limit on the volume of governmental bonds. In 2005, roughly 19,591

governmental bonds were issued, with a total volume of $311.3 billion.3 This total

includes “new money” and bonds used to refund outstanding debt. In 2005, 14,939

“new money” bonds were issued with a face value of $151 billion. Refunding bonds

are typically issued during periods of relatively low interest rates.

Technically, private activity bonds that receive tax-exempt status are called qualified

private activity bonds. For this report, the modifier “qualified” has been dropped.

The $5.6 billion is the sum of each, separate, JCT revenue loss estimate as published in

their General Explanation documents for each respective Congress. Full citations are

available in the sources note for Table 3 of this report.

Cynthia Belmonte, “Tax-Exempt Bonds, 2005,” SOI Bulletin, Fall 2007, vol. 27, no. 2.

CRS-2

Private Activity Bonds

In contrast to governmental bonds, Congress places restrictions on the issuance

of private activity bonds (PABs) to limit their use . PABs are bonds where (1) more

than 10% of the activity financed by the bonds is private activity and (2) more than

10% of the revenue used to repay the bonds is generated by activity at the financed

facility. Congress has identified a subset of private activities that can be financed

with tax-exempt bonds. The so-called qualified PABs, thus, are more like

governmental bonds. Some qualified PABs are subject to a federally imposed annual

state-by-state limit or “cap.” Other qualified PABs are subject to a national limit, a

separate state cap, or no cap at all.

The IRS reports that in 2005, total PAB “new money” volume was $54.7 billion

and of that, $20.5 billion was subject to the volume cap. Each state is free to select

the mix of qualified activities and to determine the total amount of private activity

bond volume under the cap. Most states use the total annual volume cap, though

some states do “abandon” capacity — that is, leave some capacity unused.

State use of PABs is of interest to Congress as the number of activities eligible

for tax-exempt financing has expanded significantly since 1986 and accelerated since

2001.4 If additional new activities are subject to the same cap as existing activities,

competition for cap space could limit the effectiveness of the tax preferences for

these activities. In addition, expanding the number of private activities eligible for

tax-exempt financing, particularly proposals with separate caps, may influence the

market for governmental bonds, as the new bonds would put upward pressure on

market interest rates. Higher interest rates, in turn, may constrain the ability of some

state and local governments to issue debt. And finally, issuing more tax-exempt

bonds would reduce federal revenues, contributing to a larger budget deficit.

Congressional action in the tax-exempt, private activity bond market will have a

disparate impact on the states, as each state has different objectives for PABs.

The next section uses two data sources to analyze the activities financed by

private activity bonds in each state. The first set of data, from the Internal Revenue

Service (IRS), examines all state and local bonds issued in 2005. The second set of

data, from a survey administered by the Bond Buyer publication, a unit of Thomson

Financial Inc., is more narrowly focused on bonds subject to the volume cap and

includes data for 2001 through 2006.

Use of Private Activity Bonds

Periodically, the Internal Revenue Service (IRS) compiles bond data contained

in the information return, Form 8038.5 This form is filed by issuers of tax-exempt

For more, see CRS Report RL31457, Private Activity Bonds: An Introduction, by Steven

Maguire.

IRS data are all from Cynthia Belmonte, “Tax-Exempt Bonds, 2005,” SOI Bulletin, Fall

(continued...)

CRS-3

bonds. In 2005, the most recent year where IRS data are available, new money, longterm governmental bonds raised a total of $151.6 billion, with $53.4 billion (35.3%)

used for education. Bonds identified as “new money” are in contrast to “refunding”

bonds. “New money” means the bond proceeds are to be used for a new project and

are not used to retire outstanding debt. By comparison, also in 2005, state and local

governments issued $54.7 billion of long-term, new money, private activity bonds

(about 26.5% of new money, long-term tax-exempt debt). Most private activity bond

volume is issued for non-profit organizations and hospitals ($27.969 billion).

Private Activity Bond Issuance by State

Not all PABs are subject to the federally imposed cap. Notably, the bonds

issued for nonprofit activities are not subject to the volume cap (see Table 1). In

fact, just over half of the amount of private activity bonds are subject to the state

volume cap (55% of the $54.7 billion). After bonds issued for non-profit

organizations, the next two largest categories are housing related bond issues. The

variation among states, however, is significant. The variation is due in part to the

timing of large projects and the preferences of citizens. For example, in Idaho,

Montana, and Nebraska, over 50% of private activity bond volume was used for

mortgage bonds, considerably higher than the average across all states of 10.58%.6

The IRS data in Table 1, though generally instructive, do not provide

sufficiently detailed information on the amount and allocation of private activity

bonds that are subject to the state-by-state volume cap to permit detailed analysis.

More detail about the bonds subject to the cap would help federal policymakers

analyze options for either expanding or reducing the private activities eligible for taxexempt financing.

(...continued)

2007, vol. 27, no. 2.

26 U.S.C. § 143. Mortgage bond proceeds can be applied to the purchase, improvement,

or rehabilitation of owner-occupied residences.

CRS-4

Table 1. New Money, Private Activity Bond Volume, by Activity and State, 2005

(“d” indicates IRS deleted the data to avoid possible disclosure of taxpayer information)

Percent of Total Amount Issued in 2005

State

US Total

Total Amount

Issued

(in millions)

$54,691

Airports,

Docks, and

Wharves

Water,

Sewage, &

Solid Waste

Disposal

Residential

Rental

Mortgage

Small Issue

Hospital

501(c)(3)

Nonhospital

All Other

Bondsa

6.0%

3.4%

11.8%

12.1%

1.3%

22.4%

28.8%

14.3%

Alabama

$244

0.0%

45.1%

46.3%

0.0%

Alaska

$229

0.0%

Arizona

$1,562

0.0%

10.9%

7.2%

0.0%

68.1%

2.6%

Arkansas

$292

0.0%

14.7%

California

$4,804

1.8%

5.1%

30.0%

2.0%

0.5%

23.1%

30.7%

6.7%

Colorado

$1,319

0.0%

9.1%

6.6%

27.5%

45.3%

Connecticut

$776

0.0%

27.6%

0.0%

66.1%

Delaware

$189

0.0%

39.7%

District of Columbia

$1,000

0.0%

16.3%

0.0%

20.8%

Florida

$2,004

10.3%

12.3%

5.8%

2.7%

21.5%

42.6%

Georgia

$1,757

9.4%

2.8%

39.6%

44.5%

Hawaii

Idaho

$259

0.0%

57.9%

4.2%

0.0%

Illinois

$1,960

13.3%

11.8%

2.6%

21.9%

47.6%

0.0%

Indiana

$1,668

11.8%

2.2%

55.1%

13.6%

Iowa

$510

0.0%

28.8%

4.7%

28.4%

20.4%

15.9%

Kansas

$185

0.0%

57.8%

9.2%

15.7%

0.0%

Kentucky

$538

7.2%

9.5%

25.7%

18.0%

16.4%

Louisiana

$596

28.7%

0.0%

34.9%

2.2%

CRS-5

Percent of Total Amount Issued in 2005

State

Maine

Maryland

Massachusetts

Total Amount

Issued

(in millions)

Airports,

Docks, and

Wharves

Water,

Sewage, &

Solid Waste

Disposal

Residential

Rental

Mortgage

Small Issue

Hospital

501(c)(3)

Nonhospital

$300

12.7%

38.0%

0.0%

27.0%

$914

0.0%

14.3%

67.0%

0.0%

$1,782

0.0%

6.4%

1.5%

33.1%

43.2%

All Other

Bondsa

Michigan

$2,320

5.1%

0.0%

1.2%

37.3%

8.8%

23.6%

Minnesota

$1,258

9.3%

14.7%

1.4%

17.4%

44.9%

6.0%

Mississippi

$217

0.0%

8.8%

Missouri

$1,320

16.4%

12.1%

1.1%

34.6%

18.0%

Montana

$86

0.0%

Nebraska

$248

0.0%

0.8%

18.1%

43.5%

0.0%

Nevada

$359

0.0%

12.5%

0.0%

39.3%

New Hampshire

$357

0.0%

21.8%

33.9%

0.0%

17.1%

New Jersey

$1,274

0.0%

2.4%

9.8%

3.3%

20.1%

43.0%

New Mexico

$246

0.0%

16.7%

0.0%

New York

$6,823

16.2%

0.9%

22.0%

4.0%

0.3%

5.1%

21.1%

30.4%

North Carolina

$1,611

1.0%

17.9%

23.5%

North Dakota

$244

0.0%

16.8%

11.1%

0.0%

Ohio

$1,518

5.3%

3.2%

1.6%

23.5%

34.0%

Oklahoma

$404

0.0%

18.1%

0.2%

45.0%

Oregon

$333

0.0%

24.0%

0.0%

46.5%

Pennsylvania

$2,937

5.7%

11.3%

2.6%

28.7%

43.4%

Rhode Island

$314

0.0%

53.8%

0.0%

South Carolina

$417

0.0%

9.4%

0.0%

15.3%

CRS-6

Percent of Total Amount Issued in 2005

State

South Dakota

Tennessee

Texas

Total Amount

Issued

(in millions)

Airports,

Docks, and

Wharves

Water,

Sewage, &

Solid Waste

Disposal

Residential

Rental

Mortgage

Small Issue

Hospital

501(c)(3)

Nonhospital

All Other

Bondsa

$456

0.0%

95.6%

1.1%

0.0%

3.3%

0.0%

$911

0.0%

8.1%

19.2%

36.8%

$2,821

3.2%

18.5%

2.8%

20.9%

22.0%

31.0%

Utah

$543

0.0%

23.0%

0.0%

51.2%

Vermont

$214

0.0%

7.5%

0.0%

6.1%

Virginia

$1,821

6.5%

10.7%

0.5%

23.8%

16.1%

Washington

$1,199

3.8%

21.2%

1.2%

16.8%

37.1%

10.3%

West Virginia

$240

0.0%

42.5%

45.8%

Wisconsin

$888

2.8%

38.4%

2.5%

26.1%

25.2%

0.0%

Wyoming

$378

0.0%

37.8%

0.0%

Source: CRS calculations based on data from: Cynthia Belmonte, “Tax-Exempt Bonds, 2005,” SOI Bulletin, Fall 2007, vol. 27, no. 2.

a. The “all other bonds” category includes all issues for which a specific purpose either did not apply or was not clearly indicated on the Form 8038 return, as well as bonds for: local furnishing of energy

or gas, local district heating or cooling facilities, hazardous waste facilities, facilities issued under a transitional rule of the TRA 1986, mass commuting facilities, qualified enterprise zone facility

bonds, qualified empowerment zone facility bonds, District of Columbia Enterprise Zone facility bonds, Liberty bonds, veterans’ mortgage bonds, student loan bonds, redevelopment bonds, and

nongovernmental output property bonds.

CRS-7

The Volume Cap on Private Activity Bonds

The current structure of the annual limit on PABs was first implemented as part

of the Deficit Reduction Act of 1984 (P.L. 98-369). In that year, the statewide annual

volume cap was the greater of $150 per capita or $200 million. In 1986, in addition

to myriad other changes to the private activity bond rules and tax-exempt bonds more

generally, the Tax Reform Act of 1986 (TRA 1986, P.L. 99-514) reduced the volume

cap to the greater of $50 per capita or $150 million, effective in 1988. The volume

cap remained unchanged until 1998 when the Omnibus Appropriations Act of 1998

(OBRA98, P.L. 105-277) increased the volume cap to the greater of $55 per capita

or $165 million, beginning in 2003. The 1998 rules were superceded in 2000 by the

Community Renewal Tax Relief Act of 2000 (CRTRA, P.L. 106-554), which

indexed the per capita and minimum amounts for inflation.

Table 2 reports the per capita and minimum limits for 2001 through 2008 under

current law. States choose the greater of the per capita amount multiplied by state

population or the annual minimum amount. In most years, 21 less populous states

and the District of Columbia are subject to the annual minimum.7 If population

grows significantly faster than the inflation index used to increase the cap, then the

per capita amount is determinative.

Table 2. State Private Activity Bond Annual Volume Limits,

2001 to 2008

States Choose the Greater of the Per Capita Amount

Multiplied by Population or the Minimum

Year

Per Capita Amount

State Annual Minimum

Amount (in thousands)

2001

$62.50

$187,500

2002

$75.00

$225,000

2003

$75.00

$228,600

2004

$80.00

$233,795

2005

$80.00

$239,180

2006

$80.00

$246,610

2007

$85.00

$256,235

2008

$85.00

$262,095

Percentage Change

2001 to 2008

36.00%

39.78%

Total for 2001 to 2006 period

$1,360,685

Source: 26 U.S.C § 146(d).

For all years except 2004, 21 states and the District were subject to the minimum. In 2004,

Iowa was subject to a higher population-based cap.

CRS-8

The volume cap was originally introduced to limit the use of tax-exempt private

activity bonds and to encourage states to prioritize projects, as volume cap space was

intentionally scarce. Since 2001, however, Congress has enacted legislation creating

new types of private activities not subject to the existing state-by-state cap. Congress

has also allowed selected private activity bonds to “advance refund” existing debt

under the same recently passed legislation.8 The total new volume capacity of these

new private activity bonds is at least $54.8 billion (see Table 3). The new volume

authorized under the bond legislation enacted from 2001 to 2005 was $54.8 billion.

This amount is in addition to the pre-existing total volume cap available for all states

and the District of Columbia over the same time period of $146.0 billion (see Table

5).

Table 3. New Private Activity Bond Volume Created Since 2001

Year

Authorized

Code

Section

New Volume

Authorized

(in millions)

Estimated

Revenue

Loss

(in millions)

2001

142(a)(13)

$15,000

$1,404

2002

1400L

$8,000

$1,714

Green Building

2004

142(a)(14)

$2,000

$231

Highway and Surface

Transferd

2005

142(a)(15)

$15,000

$738

Gulf Opportunity Zonee

2005

1400N

$14,800

$1,556

$54,800

$5,643

Facility Purpose

Public Educationa

New York Liberty Zone

Total

Sources: The revenue loss estimates are from: U.S. Congress, Joint Committee on Taxation, General

Explanation of Tax Legislation Enacted in the 107th Congress, 107th Cong., 2nd sess. (Washington:

GPO, 2003); U.S. Congress, Joint Committee on Taxation, General Explanation of Tax Legislation

Enacted in the 108th Congress, 108th Cong., 1st sess. (Washington: GPO, 2005); U.S. Congress, Joint

Committee on Taxation, General Explanation of Tax Legislation Enacted in the 109th Congress, 109th

Cong., 2nd sess. (Washington: GPO, 2007).

a. Created by P.L. 107-16; the volume cap is $3 billion per year for five years (2001 to 2005) and the

revenue loss is for the 2001-2012 budget window.

b. Created by P.L. 107-147 and modified by P.L. 108-311. The revenue loss represents the original

cost (2001-2012 budget window) estimate plus the cost of the modification (2003-2014). The

advance refunding provisions in the two bills increased the revenue cost $1.03 billion and is not

included in the revenue loss reported in the table.

c. Created by P.L. 108-357.

d. Created by P.L. 109-59. The volume limit is to be split between highway projects and transfer

facility projects. The revenue loss is for the 2005-2016 budget window.

e. Created by P.L. 109-135. The volume limit is estimated based on the population of the three states

eligible for the bonds: Alabama ($2.2 billion); Louisiana ($7.8 billion); and Mississippi ($4.8

billion). The revenue loss is for the 2005-2016 budget window. The legislation includes an

Current refunding is the practice of issuing bonds to replace existing bonds. Issuers

typically do this to “lock-in” lower interest rates or more favorable borrowing terms.

Current refunding is allowed as long as the “old” bonds are redeemed within 90 days of the

issuance of the refunding bonds. Advance refunding is the practice of issuing new bonds

to replace existing bonds, but not immediately (within 90 days) retiring the old bonds. Thus,

two sets of tax-exempt bonds are outstanding for the same project.

CRS-9

advance refunding provision that would cost $741 million and is not reflected in the table

amount.

Private Activity Bonds Subject to Volume Cap by State

Table 4 compares the IRS data to the Bond Buyer data for 2005 and also reports

the 2006 Bond Buyer data. For each year, the Bond Buyer data is for bonds subject

to the cap. The difference between the two amounts is likely attributable to two

factors. First, the Bond Buyer data include the bond capacity carried forward from

previous years, and second, the definitions used by the Bond Buyer are not the same

as the IRS definitions. For more robust analysis, the IRS data would need to include

more detail on the type of activity financed, by state, but for taxpayer confidentiality

reasons, the IRS has not reported these data.9 Thus, to assess more than the

magnitude of private activity bond volume for each state, one must rely on data

provided by the Bond Buyer.

Table 5 reports the six-year total (2001 to 2006) amount of bonds allocated to

selected activities, by state, as reported by the Bond Buyer. The total volume

capacity is the sum of each year’s available capacity. The column marked “Housing”

includes bonds issued for (1) mortgages for single family residences, (2) multifamily

housing projects, (3) mortgage credit certificates, and (4) other unspecified housing

programs. The column labeled “industrial development bonds” (IDBs) is primarily

small issue bonds for manufacturing. The Bond Buyer “exempt facilities” category

includes the following: airports, commuter facilities, docks and wharves, sewer and

water facilities, and solid waste disposal facilities. Student loan bonds are used to

subsidize loans for qualified students.

The territories (American Samoa, Guam, the Northern Mariana Islands, and the

U.S. Virgin Islands) and Puerto Rico also issue bonds for qualified private activities.

For the territories with population less than the least populous states, the cap is the

population of the territory divided by the population of the least populous state

(Wyoming) multiplied by the minimum amount ($262.095 million in 2008).10

The “carryforward” and “abandon capacity” columns are important in

understanding state allocations. Under current law, states can reserve unused

capacity and add the amount to the next year.11 Capacity can be carried forward up

to three years, and states will often use the carry forward to finance large projects that

may exceed the annual cap. The total accumulated carryforward to 2007 was $22.6

billion for all states and territories. Because the carryforward amount includes

allocations from more than one year, the “percent of total” amounts in Table 6 do not

sum to 100%. The District of Columbia allocated the largest carryforward to 2007,

52.5% of the total cap available. The average carryforward was 15.5%.

IRS data are from Cynthia Belmonte, “Tax-Exempt Bonds, 2005,” SOI Bulletin, Fall

2007, vol. 27, no. 2.

26 U.S.C. § 146(d)(4).

26 U.S.C. § 146(f)(3).

CRS-10

Table 4. Comparison of IRS and Bond Buyer Private Activity

Bond Data, by State

(“d” indicates IRS deleted the data to avoid possible disclosure of taxpayer information)

2005 IRS Data

State

US Total

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

D.C.

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada

New Hampshire

New Jersey

New Mexico

New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakota

Tennessee

Texas

Utah

Vermont

Virginia

Washington

Total

Volume

$54,691.0

$244.0

$229.0

$1,562.0

$292.0

$4,804.0

$1,319.0

$776.0

$189.0

$1,000.0

$2,004.0

$1,757.0

$259.0

$1,960.0

$1,668.0

$510.0

$185.0

$538.0

$596.0

$300.0

$914.0

$1,782.0

$2,320.0

$1,258.0

$217.0

$1,320.0

$86.0

$248.0

$359.0

$357.0

$1,274.0

$246.0

$6,823.0

$1,611.0

$244.0

$1,518.0

$404.0

$333.0

$2,937.0

$314.0

$417.0

$456.0

$911.0

$2,821.0

$543.0

$214.0

$1,821.0

$1,199.0

Subject to

Cap

$20,525.8

$20.8

$458.8

$2,001.0

$357.4

$262.3

$96.5

$162.8

$443.6

$268.7

$162.0

$595.8

$377.6

$238.1

$149.6

$338.7

$355.4

$216.2

$270.8

$393.4

$728.5

$408.4

$188.0

$594.5

$95.4

$174.5

$295.8

$469.9

$218.2

$1,859.6

$899.3

$175.9

$636.6

$189.6

$83.1

$651.0

$97.2

$330.0

$441.1

$554.2

$1,295.1

$265.5

$189.7

$975.2

$323.3

Bond Buyer Data

2005

Cap Volume

$26,079.1

$362.4

$239.2

$459.5

$239.2

$2,871.5

$368.1

$280.3

$239.2

$1,391.8

$706.4

$239.2

$1,012.3

$499.0

$239.2

$331.7

$361.3

$239.2

$444.6

$513.3

$809.0

$408.1

$239.2

$460.4

$239.2

$695.9

$239.2

$1,538.2

$683.3

$239.2

$916.7

$281.9

$287.6

$992.5

$239.2

$335.8

$239.2

$472.1

$1,799.2

$239.2

$596.8

$496.3

2006

Cap Volume

$26,437.5

$364.6

$246.6

$475.1

$246.6

$2,890.6

$373.2

$280.8

$246.6

$246.1

$1,423.2

$725.8

$246.6

$1,021.1

$501.8

$246.6

$333.9

$361.9

$246.6

$448.0

$511.9

$809.7

$410.6

$246.6

$464.0

$246.6

$697.4

$246.6

$1,540.4

$694.7

$246.6

$917.1

$283.8

$291.3

$994.4

$246.6

$340.4

$246.6

$477.0

$1,828.8

$246.6

$605.4

$503.0

CRS-11

2005 IRS Data

State

West Virginia

Wisconsin

Wyoming

Total

Volume

$240.0

$888.0

$378.0

Subject to

Cap

$122.2

$399.0

$373.7

Bond Buyer Data

2005

Cap Volume

$239.2

$440.7

$239.2

2006

Cap Volume

$246.6

$442.9

$246.6

Source: IRS data are from Cynthia Belmonte, “Tax-Exempt Bonds, 2005,” SOI Bulletin, Fall 2007,

vol. 27, no. 2. The Bond Buyer data are from “State Allocations and Use of Private Activity Bonds

in 2006,” The Bond Buyer, June 25, 2007; and “State Allocations and Use of Private Activity Bonds

in 2005,” The Bond Buyer, May 1, 2006.

The last category is abandon capacity. Just as the name implies, abandon

capacity is the volume capacity the state did not allocate within three years. For the

2001 to 2006 time period, $3.8 billion was abandon capacity or just 2.6% of all

capacity. Delaware abandoned the most, $486.5 million, or approximately 12.7% of

the state’s available capacity (and about one-fifth of the U.S. total abandon capacity).

In contrast, 20 states did not abandon any capacity over the 2001 to 2006 period.

Some could argue that states that abandoned a significant amount of capacity

in the past would seem unlikely to change behavior and begin authorizing the use of

tax-exempt debt to finance new projects. Alternatively, the newly created range of

tax-exempt bonds for new projects may entice states to use capacity that would have

otherwise been abandoned. The distribution of abandon capacity could be

instructive.

From 2001 to 2006, 20 states and the District of Columbia were subject to the

cumulative volume capacity minimum of $1,360.7 million over those six years (see

Table 2).12 These are the less populous states where the statutory annual minimum

amount was greater than the population based minimum. In these states, the abandon

capacity was roughly 5.8% of their capacity ($1.6 billion); the 30 more populous

states abandoned considerably less 1.9% of their capacity ($2.2 billion). From these

data, it appears the volume cap is relatively less binding for the less populous states;

there is “excess capacity” in these states. Thus, increasing or expanding the amount

available for new projects would be relatively less effective in inducing new

investment in less populous states relative to more populous states.

The District of Columbia cap in 2006 reported in the Bond Buyer was $500,000 less than

reported by the U.S. Treasury.

CRS-12

Table 5. State Use of Private Activity Bond Volume Cap,

2001 to 2006

(in $ millions)

State

Total

Capa

US Total

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

D.C.

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada

New Hampshire

New Jersey

New Mexico

New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakota

Tennessee

Texas

Utah

Vermont

Virginia

146,000.0

2,036.3

1,360.7

2,509.0

1,360.7

15,939.1

2,043.5

1,569.0

1,360.7

1,360.2

7,658.6

3,909.4

1,360.7

5,662.2

2,797.0

1,362.4

1,360.7

1,859.5

2,033.3

1,360.7

2,476.8

2,897.6

4,549.4

2,280.4

1,360.7

2,578.1

1,360.7

3,890.9

1,360.7

8,662.5

3,791.6

1,360.7

5,167.9

1,583.8

1,602.1

5,590.3

1,360.7

1,850.7

1,360.7

2,637.3

9,933.6

1,360.7

3,321.6

Housing

73,577.0

591.4

645.6

1,284.2

333.2

10,882.4

1,679.9

1,421.6

602.7

486.1

3,332.4

1,982.8

142.6

656.8

2,191.2

1,460.0

749.8

1,171.3

1,054.4

669.2

600.6

1,617.1

1,494.2

856.9

1,781.9

503.4

1,476.6

733.8

793.3

436.9

662.0

935.7

791.3

6,896.0

729.8

694.6

2,439.7

909.1

806.0

1,779.4

483.0

567.2

780.0

941.1

5,004.7

632.9

488.3

2,235.0

IDB

—

Small

Issue

Exempt

Facility

Student

Loan

7,563.0

167.5

0.0

18.7

100.7

248.0

62.3

23.9

4.5

15.0

354.2

257.1

0.0

37.6

504.6

517.1

79.5

119.4

79.5

236.5

141.3

83.9

228.1

307.7

72.6

62.0

130.2

3.0

107.2

82.5

38.4

272.1

23.0

217.5

187.2

5.1

426.6

57.7

56.3

739.5

24.4

139.9

18.8

125.4

204.9

58.5

17.3

135.1

15,492.0

135.3

148.1

424.5

247.8

1,416.8

154.8

43.3

15.4

0.0

742.2

239.6

180.0

58.1

171.1

641.4

90.4

38.0

388.5

199.7

0.0

40.6

446.1

591.1

86.0

79.7

205.0

178.0

0.0

119.0

243.0

570.8

109.7

111.5

544.5

15.0

524.8

218.0

104.5

1,403.7

100.1

355.4

0.0

262.4

2,383.0

85.4

209.2

156.7

21,321.0

75.0

279.4

569.8

478.5

1,047.9

493.3

107.3

0.0

984.2

0.0

125.0

20.0

89.0

231.7

268.9

0.0

530.6

472.1

225.0

0.0

873.6

1,575.1

197.4

326.6

562.9

628.2

0.0

515.0

1,071.0

512.6

0.0

1,407.6

1.0

598.4

453.7

0.0

970.0

370.1

674.7

0.0

972.3

1,635.8

506.8

852.2

0.0

Carryforward

to 2007

22,638.0

893.4

358.0

206.5

188.1

1,315.8

0.0

36.1

596.2

518.8

2,377.6

1,130.1

575.3

362.5

n.a.

0.0

70.4

0.0

1.0

161.8

461.8

698.8

4.0

930.1

161.4

380.1

149.2

208.1

500.0

475.0

86.2

747.0

65.2

763.3

593.5

714.7

1,198.5

66.2

627.3

638.4

236.3

175.8

616.9

0.0

707.9

139.6

27.8

704.3

Abandon

Capacity

3,818.0

68.1

90.6

82.4

176.0

9.9

0.0

41.1

486.5

330.9

459.5

363.0

138.4

0.0

55.8

3.2

236.3

0.0

16.0

0.0

3.8

21.8

0.0

32.3

0.0

433.4

0.0

98.3

83.4

10.4

22.6

0.3

0.0

66.0

214.8

0.0

134.7

0.0

9.0

28.9

CRS-13

State

Washington

West Virginia

Wisconsin

Wyoming

Total

Capa

Housing

2,762.5

1,360.7

2,469.8

1,360.7

IDB

—

Small

Issue

1,579.2

509.8

1,311.1

768.4

Carryforward

to 2007

Exempt

Facility

Student

Loan

422.7

268.2

93.0

230.2

428.7

0.0

190.0

130.1

192.8

254.3

193.0

Abandon

Capacity

284.2

462.5

806.6

215.7

0.0

75.7

25.2

0.0

Source: Author calculations based on Bond Buyer data.

a. Does not include the new volume created by legislation identified in Table 3 of this report.

Table 6. State Use of Private Activity Bond Volume Cap as

Percent of Total, 2001 to 2006

State

US Total

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

D.C.

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada

New Hampshire

New Jersey

New Mexico

New York

Housing

50.4%

29.0%

47.4%

51.2%

24.5%

68.3%

82.2%

90.6%

44.3%

35.7%

43.5%

50.7%

10.5%

48.3%

38.7%

52.2%

55.0%

86.1%

56.7%

32.9%

44.1%

65.3%

51.6%

18.8%

78.1%

37.0%

57.3%

53.9%

58.3%

32.1%

48.7%

24.0%

58.2%

79.6%

IDB —

Small

Issue

5.2%

8.2%

0.0%

0.7%

7.4%

1.6%

3.0%

1.5%

0.3%

1.1%

4.6%

6.6%

0.0%

2.8%

8.9%

18.5%

5.8%

8.8%

4.3%

11.6%

10.4%

3.4%

7.9%

6.8%

3.2%

4.6%

5.1%

0.2%

7.9%

6.1%

2.8%

7.0%

1.7%

2.5%

Exempt

Facility

10.6%

6.6%

10.9%

16.9%

18.2%

8.9%

7.6%

2.8%

1.1%

0.0%

9.7%

6.1%

13.2%

4.3%

3.0%

22.9%

6.6%

2.8%

20.9%

9.8%

0.0%

1.6%

15.4%

13.0%

3.8%

5.9%

8.0%

13.1%

0.0%

8.7%

17.9%

14.7%

8.1%

1.3%

Student

Loan

14.6%

3.7%

20.5%

22.7%

35.2%

6.6%

24.1%

6.8%

0.0%

12.9%

0.0%

9.2%

1.5%

1.6%

8.3%

19.7%

0.0%

28.5%

23.2%

16.5%

0.0%

30.1%

34.6%

8.7%

24.0%

21.8%

46.2%

0.0%

37.8%

27.5%

37.7%

0.0%

Carryforward

to 2007

15.5%

43.9%

26.3%

8.2%

13.8%

8.3%

0.0%

2.3%

43.8%

38.1%

31.0%

28.9%

42.3%

26.6%

0.0%

5.2%

0.0%

0.1%

8.0%

33.9%

28.2%

0.1%

20.4%

7.1%

27.9%

5.8%

15.3%

36.7%

34.9%

6.3%

19.2%

4.8%

8.8%

Abandon

Capacity

2.6%

3.3%

6.7%

3.3%

12.9%

0.1%

0.0%

2.6%

35.8%

24.3%

6.0%

9.3%

10.2%

0.0%

2.7%

0.2%

9.5%

0.0%

0.4%

0.0%

0.3%

0.8%

0.0%

2.4%

0.0%

11.1%

0.0%

CRS-14

State

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakota

Tennessee

Texas

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

Housing

19.2%

51.0%

47.2%

57.4%

50.3%

31.8%

35.5%

30.6%

57.3%

35.7%

50.4%

46.5%

35.9%

67.3%

57.2%

37.5%

53.1%

56.5%

IDB —

Small

Issue

4.9%

0.4%

8.3%

3.6%

3.5%

13.2%

1.8%

7.6%

1.4%

4.8%

2.1%

4.3%

1.3%

4.1%

4.7%

14.2%

10.3%

14.2%

Exempt

Facility

14.4%

1.1%

10.2%

13.8%

6.5%

25.1%

7.4%

19.2%

0.0%

9.9%

24.0%

6.3%

15.4%

4.7%

15.3%

19.7%

3.8%

16.9%

Student

Loan

37.1%

0.1%

11.6%

28.6%

0.0%

17.4%

27.2%

36.5%

0.0%

36.9%

16.5%

37.2%

62.6%

0.0%

15.5%

0.0%

14.0%

Carryforward

to 2007

Abandon

Capacity

15.7%

52.5%

23.2%

4.2%

39.2%

11.4%

17.4%

9.5%

45.3%

0.0%

7.1%

10.3%

2.0%

21.2%

10.3%

34.0%

32.7%

15.9%

2.6%

6.1%

0.2%

1.4%

0.0%

3.6%

15.8%

0.0%

1.4%

0.0%

0.7%

0.9%

0.0%

5.6%

1.0%

0.0%

Source: Author calculations based on Bond Buyer data.

Note: The carryforward amount includes allocations from more than one year, thus, the “percent of

total” amounts do not sum to 100%.

Selected Private Activity Bond Legislation

Members of the 110th Congress have enacted one private activity bond law and

introduced several bills that would change the tax treatment of state and local bonds

issued to finance private activities. These activities include housing, economic

development, infrastructure investment, renewable energy, recycling, conservation

initiatives, and tribal government parity.

Housing Related Proposals

On May 25, 2007, the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery,

and Iraq Accountability Appropriations Act (H.R. 2206, P.L. 110-28) was enacted.

The legislation relaxes the tax-exempt mortgage revenue bond rules for repairs and

reconstruction of homes in the areas affected by the 2005 Hurricanes Katrina, Rita,

and Wilma. The underlying bonds are subject to the volume limits that apply to

Qualified Gulf Opportunity Bonds and do not create additional capacity.

The Katrina Housing Tax Relief Act of 2007 (H.R. 1562) would extend, to the

end of 2010, tax-exempt mortgage revenue bonds issued to finance rehabilitation

loans for repair and reconstruction of homes in areas devastated by Hurricane

Katrina. The legislation passed the House on March 27, 2007, by voice vote. The

Senate has not yet acted on the legislation. H.R. 4312 and the related S. 2757 would

further expand the Gulf Opportunity Bond provisions.

CRS-15

Two House bills, H.R. 3742 and the Military Assistance Act of 2007, H.R. 3816,

would eliminate the first-time homebuyer requirement for mortgage revenue bonds

issued to finance mortgages for qualified veterans. More generally, H.R. 5720,

which was approved by the House Ways and Means Committee on April 9, 2008,

would allocate an additional $10 billion for mortgage revenue bonds and residential

rental facilities. In addition, a Senate-amended version of H.R. 3221 would also

allocate an additional $10 billion.

H.R. 5239 and S. 2517 would allow the issuance of $15 billion in additional

mortgage revenue bonds for the purchase of subprime mortgage loans. A related bill,

S. 2574, the Mortgage Refinancing Initiative Act of 2008, would permit the Secretary

of Treasury to allocate an additional $5 million each for 2008 and 2009. (Note that

the amount may have been intended to be $5 billion for each year.)

Economic Development Proposals

Two companion bills, the Research and Development Tax Credit Act of 2007

(H.R. 1712) and the Research Competitiveness Act of 2007 (S. 41), would allow the

issuance of tax-exempt facility bonds for research park facilities used in connection

with research and experimentation. These bonds would be subject to the existing

state volume cap. The tax-exempt bonds created by S. 672 would not be subject to

a volume cap. H.R. 3089 would create a new category of private activity bonds for

construction of domestic use oil refineries.

Under H.R. 2110, tax-exempt small issue bonds could be used to finance the

purchase of property or land used primarily for the processing of agricultural

products. These bonds would be subject to the state volume cap. The Trade and

Globalization Assistance Act of 2007, H.R. 3920, would increase the amount of taxexempt bond proceeds a project can use in a newly designated “manufacturing zone.”

The Empowerment Zone and Renewal Community Enhancement Act of 2007

(H.R. 2578 and S. 1627) would expand the empowerment zone and enterprise

community program by creating “rural enterprise communities.” Each community

would be subject to an individual volume limit of $200 million, but they would not

be subject to the state volume cap. The legislation also does not include a national

cap.

Infrastructure Investment Proposals

Two bills would allow bonds that are guaranteed by the federal government and

by the quasi-federal home loan bank to also be tax-exempt. Generally, federally

guaranteed debt cannot be tax-exempt. H.R. 1959 would permit interest on federally

guaranteed water, wastewater, and essential community facilities loans to be tax

exempt. H.R. 2091 would allow the federal home loan banks (FHLBs) to guarantee

tax-exempt bonds. FHLBs guarantees would likely be used for bonds issued by state

and local governments, or private entities acting on behalf of state and local

governments, such as water and sewer authorities. In the Senate, S. 1963 would also

allow bonds guaranteed by the FHLB to be tax-exempt.

CRS-16

The Spaceport Equality Act of 2007 (H.R. 2285 and S. 1355) would create a

new facility eligible for tax-exempt financing: spaceports. The new bonds would not

be subject to the state volume cap as long as the facility is government owned. The

tax treatment of the new bonds would be similar to that for airports.

The Clean Air and Water Investment Act of 2007 (H.R. 2812) would create a

new qualified exempt facility: air or water pollution control facilities. The legislation

identifies such facilities as those intended “...to abate or control water or atmospheric

pollution or contamination by removing, altering, disposing, or storing pollutants,

contaminants, wastes, or heat....” The bonds would be subject to the state volume

cap.

Environmental and Conservation Proposals

The Recycling Investment Saves Energy Act (S. 1587) would allow for the taxexempt bond financing of qualified recycling facilities. The tax-exempt bonds issued

to finance these facilities would be subject to the state volume cap. The Clean

Renewable Energy and Economic Development Incentives Act of 2007 (S. 1531)

would expand the list of private activities to include facilities that use renewable

resources for energy production. Similarly, the Rural Community Renewable Energy

Bonds Act (S. 672) would allow the issuance of tax-exempt small issue bonds to

finance qualified renewable energy facilities.

The Community Forestry Conservation Act of 2007 (S. 1952 and H.R. 3456)

would allow the issuance of $10 billion in tax-exempt bonds to finance the purchase

and conservation of forests by qualified organizations as defined in the legislation.

The bonds would be allocated by region and would not be subject to the state volume

cap.

S. 1987 would provide an additional $12 billion in private activity bond volume

cap for the construction of an alternative motor vehicle facility. The bonds must be

issued before January 1, 2013 and a single issuer can use a maximum of $4 billion

of capacity.

Other Proposals

The Tribal Government Tax-Exempt Bond Parity Act of 2007 (H.R. 3164 and

S. 1850) would expand the range of activities that tribal governments can use taxexempt debt to finance. Under current law, tribal governments can use tax-exempt

bonds to finance spending on “essential government services,” but not other

activities. However, no consistent definition of essential government service has

been identified. The legislation defines “essential government service” as “...any

function which is performed by a State or local government with general taxing

powers.” Qualified private activities would likely not be included in essential

government function under this definition.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.