Corporate Finance

Obama Unveils New Financing for Infrastructure Projects

The Qualified Public Infrastructure Bond program will fund a wide range of public-private projects.
Matthew HellerJanuary 19, 2015

As part of an effort to promote private investment in U.S. infrastructure projects, the Obama administration has proposed a new type of security that would extend the benefits of municipal bonds to public-private partnerships.

The proposed Qualified Public Infrastructure Bond program will have no expiration date and no issuance caps, and interest on the bonds will not be subject to the alternative minimum tax, the White House said in a news release.

The existing Private Activity Bond program has been used to help finance more than $10 billion of roads, tunnels and bridges. QPIBs will expand the scope of PABs to include financing for airports, ports, mass transit, solid waste disposal, sewer and water, as well as for more surface transportation projects, according to the White House.

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“Today, public private partnerships that combine public ownership with private sector management and operations expertise cannot take advantage of the benefits of municipal bonds,” the statement noted. “QPIBs will extend the benefits of municipal bonds to public private partnerships, like partnerships that involve long-term leasing and management contracts, lowering the cost of borrowing and attracting new capital.”

Bloomberg reported that the proposal for a new type of security in the $3.6 trillion municipal market “is part of a broader White House plan calling for more investment in roads, bridges and other infrastructure in advance of the administration’s budget proposal that will be released Feb. 2.”

In 2014, the market contracted for an unprecedented fourth straight year as municipalities shied away from borrowing even as tax-exempt interest rates were close to generational lows.

The interest in debt for public-private partnerships “has clearly been growing, and we’ve seen states in particular launch a lot of these projects,” Robin Prunty, who oversees state credit ratings at Standard & Poor’s in New York, told Bloomberg. “The availability of an attractive alternative with cost-effective financing, certainly from a strict muni perspective, that’s a positive.”

There is currently a $15 billion limit on issuance of private-activity bonds, and the QPIBs cannot be used to privatize public systems or finance privately owned facilities.