It’s not a certainty yet…but it could be a boon for public facilities
Something good could happen as a result of congressional action. A recently introduced bill would provide a $5 billion boost for the construction and rehabilitation of government-owned buildings. The Public Buildings Renewal Act (S. 932), if passed by Congress, will open up tax-exempt financing for public buildings – many of which are in dire need of salvaging and/or improving.
Bill sponsors say the bill will encourage public-private partnerships for construction projects, lower the cost for taxpayers and incentivize investors. It would also create jobs and provide an economic boost.
Many government facilities which heretofore have been ineligible for federal tax-exempt funding could get significant attention because of the bill. Eligible facilities would include the following:
- an elementary or secondary school;
- facilities of a state college or university used for educational purposes;
- a public library;
- a courthouse;
- hospital, health care, laboratory or research facilities;
- public safety facilities; or
- offices for government employees.
The financing vehicle for the tax-exempt funding will be private activity bonds.
Successful public-private partnerships are increasing rapidly in the United States. Allowing private activity bonds to cover public building projects would not only provide a new financing option, but it would also open up a robust marketplace with incentives for private-sector contractors and investors. The $5 billion would be leveraged to bring in additional funding so public officials would also be highly incentivized to rehabilitate public facility assets that qualify.
With the filing of this legislation, long-time whispers of a national infrastructure bill began to escalate once again and support for the Public Buildings Renewal Act appears to be bipartisan and strong. Passage of the bill would be good news for every state in the nation.
The new funding would be especially welcome in states like Washington, where legislators are attempting to pass a bipartisan $4.6 billion capital construction bill. The bill calls for record funding for public schools and public colleges and universities – $1.1 billion for K-12 construction projects and $927 million for higher education. The federal bill could offer an alternative funding source for some of those projects.
This bill would also be of particular interest for higher education campuses that depend heavily on state funding. A report from the State Higher Education Executive Offices Association notes that state funding for higher education has only recovered halfway since the start of the Great Recession in 2007. Most public institutions struggle with significantly reduced funding.
In Texas, numerous state-supported universities have asked the legislature for authority to issue tuition revenue bonds (TRBs) for campus facilities. TRBs are revenue bonds backed by tuition and fees issued by institutions of higher education. The problem is that not all requests are granted. Some of the current TRB requests include $45 million for a Digital Learning Center at Lamar University and partial TRB financing for a new academic and research space at Texas State University in San Marcos that is projected to cost $120 million. If the legislature does not approve TRBs for these projects, they could become candidates for private activity bonding if the public buildings financing act passes.
The city of Puyallup, Washington, is contemplating a much-needed combined jail, court and police facility. City officials say the project could cost $100 million so a public-private partnership and tax-exempt financing would be a windfall for taxpayers. If Congress does not open up tax-exempt financing options for the project, officials say they will most likely have to ask voters to approve a bond package. If the city is able to use private activity bonds, it would take the tax burden off property owners.
As is the case in many cities and counties, failed bond issues and taxing efforts have local officials scrambling for other ways to finance long-overdue projects. Many public buildings have suffered for decades because of deferred maintenance. Many other public buildings are inefficient, costly to operate and some are simply unsafe.
In Benton County, Arkansas, voters said no to a recent referendum for a temporary sales tax to finance a new $30 million courthouse. County leadership is now back to square one seeking an alternative financing option. The courthouse was built in 1928 and is, of course, inefficient and very costly to maintain and operate.
Public schools seek billions of dollars every year for new facilities and for rehabilitation of existing buildings, many of which have passed their life expectancy. When bond elections fail, nothing changes. Public assets dwindle and deteriorate. Old school buildings were not built with a focus on safety nor are they conducive to security upgrades. Tax-exempt financing and public-private partnerships have the potential to provide for many critical school facility needs.
This bill will be carefully monitored by public officials charged with preserving public assets, investors interested in tax incentives and contractors who could provide the services. Taxpayers are less likely to follow the proposed legislation, but ironically, it is America’s taxpayers who will benefit most if Congress passes the bill.