Tax bill hurts Trump’s vow to fix ‘other airports’

Bloomberg

President Donald Trump has compared landing at Los Angeles International and other US airports to arriving in a third-world country. But a provision in the tax bill passed by the House of Representatives would eliminate a tool
central to his $1 trillion pledge
to upgrade airports and other public works.
The House measure would eliminate a form of tax-exempt debt called private-activity bonds. That would leave Los Angeles World Airports, which runs LAX, with the choice of scaling back projects in its $14 billion modernisation plan or finding $500 million in new revenue because of higher borrowing costs, CFO Ryan Yakubik said.
“Certainly, it had been made clear that infrastructure was a great priority, and that finding ways to do that was important,” Yakubik said. “This doesn’t seem pointed in that direction.”
While the Trump administration has called for expanding the use of the bonds to attract more private investment in US infrastructure, the House tax bill passed would eliminate them after December 31. Airport executives, state transportation officials and other advocates unsuccessfully lobbied lawmakers to remove the provision. It’s not in the current Senate plan, and they’re pushing to keep it out of any final bill.
Advocates say losing the tax exemption would mean airports, port authorities, state and local governments and other entities would complete fewer projects or face higher costs at a time the American Society of Civil Engineers has said the US needs an additional $2 trillion for infrastructure by 2025. Trump has promised to invest $1 trillion over 10 years.
“They just won’t be able to do these deals,” Toby Rittner, president and chief executive of the Council of Development Finance Agencies, said. “At the end of the day, you just hope smart-minded people in the House and Senate see the ramifications of this.”
Private-activity bonds, or PABs, are issued by state and local governments and other public authorities to give private entities access to tax-exempt debt to increase their participation and lower costs for qualified projects. They’re also used by hospitals, universities and other non-profit groups.
Without the tax exemption, borrowing costs for state and local governments would rise by as much as 35 percent, Ritter said in letter to congressional leaders on behalf of more 200 cities, banks and other entities nationally and in 39 US states and territories.
The impact would be especially felt at LAX and other US airports, where PABs accounted for 60
percent of bonds issued for terminal renovations and other capital projects during the past decade, according to Airports Council International—North America.
Airports have an estimated $100 billion in infrastructure needs by 2021, and financing that work without PABs could increase costs to the airport industry by $3.2 billion over the life of the bonds, according to a letter sent to Senate Finance Committee leaders by the Council and the American Association of Airport Executives. Some airports may have no choice but to cancel or delay projects, they said.
Voters in Kansas City approved a new $1 billion terminal, and the elimination of PABs could throw the project’s future into question because of higher borrowing costs, Mayor Sly James said. Philadelphia International Airport would have to re-evaluate the sequence of about $377 million in planned projects, Chief Executive Chellie Cameron said. Denver International Airport would have to evaluate other financing options if the bonds were eliminated because it had expected to use them for about three-quarters of a planned $3.5 billion capital improvement program, CFO Gisela Shanahan said.

Borrowing Costs
Republican tax-writers said the federal government shouldn’t subsidise the borrowing costs of private businesses when their competitors must pay higher interest rates on debt. Eliminating the tax exemption also would increase federal revenue by $38.9 billion through 2027 to help pay for tax cuts, according to the Joint Committee on Taxation.
Still, there’s a misperception about PABs because the bulk of the deals are for assets that the public uses, said Susan Monteverde, vice president for government relations at the American Association of Port Authorities. “We are building a transportation hub for trade, which everyone sees as a valuable public asset,” Monteverde said.
Advocates were surprised by the provision because the Trump administration had proposed expanding the bonds as a way to tap more private capital for the president’s infrastructure plan, which is expected after the tax overhaul.
The White House has called for allocating $200 billion in federal funds to generate $800 billion in spending by states, localities and the private sector.