Direct Pay Bonds

In the 116th Congress, H.R.2 the Moving America Forward Act introduced a new category of “Qualified Infrastructure Bond.” QIBs would be taxable bonds similar to Build America Bonds where a cash credit accrues to the issuer for a portion of the interest expense. The reimbursement percentages for issuers are proposed to be (by year of issuance):

• 2020 through 2024: 42%
• 2025: 38%
• 2026: 34%
• 2027 and thereafter: 30%

The bill defines Qualified Infrastructure Bond as “100 percent of the available project proceeds of such issue are to be used for capital expenditures or operations and maintenance expenditures in connection with property the acquisition, construction, or improvement of which would be a capital expenditure.” The bond must also qualify for tax exemption and meet arbitrage issue price requirements. Current refundings of QIBs would be permitted. Importantly, the proposal includes a provision effectively exempting QIB subsidy payments from budget sequestration.

When commuting to work, you’re riding on roads, crossing bridges, and going through tunnels, which are built and maintained by the issuance of tax-exempt municipal bonds. (Train approaching below the bridge over Ohio’s Cuyahoga Valley)