Municipal Bond Forum

Fallout from possible changes to private activity bonds

We’re waiting with bated breath for your reading of the Senate’s version of the tax overhaul bill passed last week. Did the Senate version eliminate or reduce the exemption for private activity bonds? Will existing PABs be grandfathered or will any new rule apply to them, too? Specifically, what kind of bonds are effected? When we buy bonds, what do we look for to determine if they’re PABs? 
D.H., Virginia

James A. Klotz responds:

No need for bated breath.The Senate version did not eliminate or reduce the exemption for private activity bonds. The House bill eliminates all PABs.If PABs are reduced or eliminated, it will only apply to new issuance. Outstanding issues will remain tax-free.It is not clear specifically which bonds would be affected in the House bill but clearly would include financing for hospitals, stadiums, highways, bridges and other infrastructure projects.If the Senate's version is enacted, you will not require any more information than you do today to select your bonds.If private activity bonds are eliminated, "taxable" will be included in the description.As we said in our most recent article (“Attacking Certain Munis Imperils Infrastructure Goals”), the issue is far from settled, so stay tuned.