Splashy plans to remake Washington’s Dulles International Airport commanded headlines recently, but behind the modernization effort is a decidedly old-fashioned financing tool.

Municipal bonds.

The proposed work on Dulles helps illuminate what’s behind exceptionally strong municipal bond issuance: Communities need to secure capital for important public projects, and investors have a healthy appetite for the tax-exempt securities that are key to financing those improvements.

Munis behind Dulles

Dulles, built in 1962, is one of the nation’s busiest international airports and has long been criticized for its limited gate capacity, cumbersome passenger connections and other issues.

The $22 billion makeover calls for adding or renovating more than 5 million square feet of space, replacing two concourses and eliminating the vehicles that move passengers between some parts of the airport.

The project’s participants, including the Metropolitan Washington Airports Authority, United Airlines and other carriers operating out of Dulles, will rely on municipal bonds for financing, according to the U.S. Department of Transportation.

Of course, Dulles isn’t alone. Hartsfield-Jackson Atlanta International Airport, the world’s busiest by passenger count last year, is also turning to the municipal bond market, with $1.1 billion of munis set to price next week.

Robust issuance

Municipals are the workhorse of U.S. infrastructure, financing most public projects – and it shows.

Issuance set a record last year at $579.936 billion, surpassing 2024’s milestone year of $450.356 billion. For the first six months of this year, approximately $299 billion of bonds have been issued, on pace for another record year.

Highways, public transit and airports are among the largest recipients of municipal bond financing. Critical assets such as water and wastewater systems, schools and hospitals also rely on tax-exempt bonds.

The lion’s share of public infrastructure spending – 75% – is borne by state and local governments, and municipals are central in enabling these investments, according to a recent report by the National League of Cities. Importantly, they enable communities to plan for the future.

“Infrastructure projects often have a lifespan of 20 to 50 years, and municipal bonds allow governments to match financing timelines with asset lifecycles. This ensure that the cost of infrastructure is distributed across the generations that benefit from it,” the NLC said.

Modernizing an aging airport like Dulles requires long-term capital, a natural fit for tax-exempt bonds.

Raising the cap on PABs?

In a move to further boost infrastructure projects – and the use of tax-exempt municipal bonds to help finance them – the Department of Transportation is advocating raising the cap on private activity bonds.

PABs are municipal bonds used to attract private funds for projects that have some public benefit. They were established in 1968 and initially covered 12 eligible activities. Since then, the number of eligible activities has more than doubled, while efforts have been underway to further expand their use (“Muni Bonds Can Be Key in Infrastructure Investment”).

In 2021, Congress doubled the transportation PAB authorization from $15 billion to $30 billion. DOT has now allocated the full $30 billion and wants Congress to increase the limit so more transportation projects can be financed.

Regardless of whether Congress raises the cap, the message is clear: Communities continue to face significant infrastructure needs, and municipal bonds remain one of the primary ways to finance them.

For investors, that means the market continues to offer opportunities to participate in the projects and earn a steady stream of tax-exempt income.

Projects like the Dulles makeover are a reminder that municipal bonds play an essential role in the public improvements people depend on every day.