President Obama today announced a series of proposals to encourage greater private investment in US highways and other infrastructure assets. The president’s proposals include an increase from $15 billion to $19 billion in the amount of tax-exempt private activity bonds (PABs) that may be issued for surface transportation projects. The president announced his plan while visiting the Port of Miami Tunnel in Miami, Florida, one of the nation’s pioneering public-private partnership projects, which is currently under construction. 

The president’s announcement comes just one day after the Indiana Finance Authority issued $676 million in PABs for the construction of the East End Crossing, a new bridge over the Ohio River connecting Louisville, Kentucky, and Southern Indiana. WVB East End Partners, LLC, a private development consortium comprising affiliates of Bilfinger Project Investments North America, Inc., VINCI Concessions S.A.S. and The Walsh Group Ltd., was selected by the Indiana Finance Authority in late 2012 to construct, operate and maintain the East End Crossing under a 35-year public-private agreement. The East End Crossing financing is the largest issuance of PABs to date. Mayer Brown represented WVB East End Partners, LLC, in the PABs financing, as well as in negotiating the public-private agreement. Mayer Brown also acted as underwriters’ counsel in 2010 for the issuance of PABs to finance private sector development of portions of the Denver Regional Transportation District’s FasTracks project, the first and only use to date of PABs for mass transit.

Surface transportation PABs were authorized under a federal transportation statute enacted in 2005 and have gained increased market acceptance in the past several years. Under this statute, private entities can access low-cost, tax-exempt financing for the development and construction of highways, bridges and tunnels, mass transit and freight intermodal projects. This produces significant cost savings for both the government entity sponsoring the project and its private sector partner.

The president also proposed to create a new form of taxable infrastructure bond, known as America Fast Forward Bonds, as an alternative to the issuance of tax-exempt bonds. America Fast Forward Bonds are modeled after Build America Bonds, which were authorized under 2009 stimulus legislation and provided for the payment of a direct subsidy to bond issuers in lieu of providing an exemption from federal income tax to holders of the bonds for interest received. Under the president’s proposal, the subsidy for America Fast Forward Bonds would equal 28 percent of the interest payable to holders, instead of the 35 percent provided for Build America Bonds. Finally, qualified uses for America Fast Forward Bonds would be broader than those previously authorized for Build America Bonds.

President Obama’s proposals for encouraging greater private investment in US infrastructure also include granting foreign pension funds tax-exempt status when selling infrastructure or real estate assets, $4 billion in increased spending for the Transportation Investment Generating Economic Recovery (TIGER) grant program and the Transportation Infrastructure Finance and Innovation Act (TIFIA) loan program, exempting water infrastructure projects from the state-by-state PABs volume cap, authorizing private ownership of tax-exempt PAB-financed airports, docks, wharves and mass commuting facilities, and a renewed call for a $10 billion national infrastructure bank.

For further information regarding the subject of this Legal Update, please contact George Miller at +1 212 506 2590, David Narefsky at +1 312 701 7303, John R. Schmidt at +1 312 701 8597 or Joseph Seliga at +1 312 701 8818.