Whiplashed Planners Fear GOP Swerve on Infrastructure

Roll Call discusses private activity bonds with Marc Scribner.

Los Angeles has gained national notice for a series of ambitious projects affecting all facets of southern California’s transportation network, from the city’s light rail system to Los Angeles International Airport.

Many of the projects — a multibillion dollar expansion of the airport, work on roads leading to and from the busy ports of Los Angeles and Long Beach and a new light rail line, among others — were or will be financed with a tool called private activity bonds.

Known as PABs by those who use them, the bonds are issued by public-sector authorities to raise tax-exempt financing for private entities doing a project with a public benefit. Buyers of the bonds don’t have to pay tax on the interest income, allowing the issuer to borrow at a lower rate than would otherwise be available.

Small-government conservatives have issues with the use of private activity bonds for housing, which accounts for about 80 percent of the private activity bonds issued, said Marc Scribner, a senior fellow at the libertarian Competitive Enterprise Institute. When used for housing, the bonds can turn into tax breaks for well-connected developers without fixing the fundamental problems driving housing shortages, he said.

But in terms of transportation infrastructure, the bonds encourage private sector involvement, and CEI has supported them for transportation projects, especially highways, he said.

The House bill’s solution to scrap the entire private activity bond function would hurt the ability of the private sector to spend on transportation infrastructure, he said. The system could be improved, but eliminating private activity bonds completely would be a mistake, tantamount to “throwing the baby out with the bath water,” Scribner said.

“If you want to increase the private sector in the provision of public-sector infrastructure, eliminating private activity bonds is a really bad way to do that,” he said.

The measure was “not very well thought out and certainly not thought out in terms of broader goals outside of tax issues,” he said.

Read the full article at Roll Call.