Navigating the Complexities of Infrastructure Financing: Unlocking the Potential of Private Activity Bonds

The Bipartisan Infrastructure Bill (BIB) was hailed as a game-changer, promising to unlock new avenues for infrastructure financing through the introduction of two novel types of tax-exempt facility bonds. However, as industry experts have revealed, the implementation of these bonds has been mired in a quagmire of regulations and unanswered questions, leaving the anticipated surge in private activity bond issuance largely stagnant.

Unleashing the Power of Private Activity Bonds: Untapped Potential Awaits

Navigating the Regulatory Maze: Challenges and Complexities

The introduction of the BIB's new tax-exempt facility bonds, designed to fund projects for broadband expansion and carbon dioxide capture facilities, has been met with a complex web of regulations and ambiguities. According to Ed Rojas, a partner at Holland and Knight, the initial enthusiasm surrounding these bonds has given way to a reality where they "really haven't been used."The rules governing these financing mechanisms have become increasingly convoluted, causing would-be issuers to hit roadblocks as they delve deeper into the details. Matthias Edrich, a partner at Kutak Rock, echoes this sentiment, stating, "There's a lot of discussion about what will qualify, but as far as we're able to tell, there have not been any bond issues."

The Carbon Capture Conundrum: Seeking Clarity and Guidance

One of the key challenges lies in the specific requirements for carbon dioxide capture facilities. The tax attorneys see similarities between these bonds and the financing of solid waste facilities, but the lack of a clear definition for "sequestration of the CO2" has created a significant obstacle.As Edrich explains, "We would have a denominator in this calculation that would be zero." The industry has raised concerns about the wording of the statute, suggesting that the drafters may not have anticipated the complexities of certain types of projects that do not have the capture or storage component.

Broadband Expansion: A Tangled Web of Regulations and Competing Initiatives

The expansion of broadband access to underserved communities, another focus area of the BIB, has also encountered its fair share of challenges. The Broadband Equity, Access and Deployment program, administered by the National Telecommunications and Information Administration, has come under scrutiny, with FCC Commissioner Brendan Carr testifying that "not one person has been connected to the internet with those dollars, not one home, not one business."The bond opportunities created for broadband expansion are accompanied by a complex set of rules that lack clarity on issues such as access for multifamily buildings and the use of satellites versus terrestrial towers. Additionally, the reliance on an FCC-created map to determine "underserved areas" has raised concerns about the accuracy of the data, further complicating the qualification process.

Competing Funding Sources: A Crowded Landscape

The availability of alternative funding sources for infrastructure projects has also contributed to the slow uptake of the BIB's private activity bonds. As Edrich notes, "There's a lot of funding available through other sources to expand broadband, and contractors are very busy pursuing those installations. They don't have time to worry about bond financing right now."Many states have launched their own initiatives to boost internet access, potentially competing with the federal dollars and further diluting the demand for the BIB's bond financing options.

Unlocking the Potential: The Path Forward

Despite the current challenges, industry experts remain optimistic about the potential of these private activity bonds. Edrich suggests that once the necessary guidance and clarification are provided, "there would be a significant amount of interest in the CO2 bond category."The successful implementation of these financing mechanisms could unlock a new era of infrastructure development, empowering private entities to play a more active role in addressing the nation's pressing needs. However, to realize this potential, policymakers and regulatory bodies must work closely with industry stakeholders to streamline the process, provide clear guidelines, and address the lingering uncertainties.As the Bipartisan Infrastructure Bill continues to evolve, the journey towards unlocking the full potential of private activity bonds remains a work in progress, requiring a collaborative effort to navigate the complexities and unlock the transformative power of these innovative financing tools.