Steven Maguire
Specialist in Public Finance
The federal tax code classifies state and local bonds as either governmental bonds or private activity bonds. Governmental bonds are for projects that benefit the general public, and private activity bonds are for projects that primarily benefit private entities. Typically, the interest earned by holders of these bonds is exempt from federal income taxes.
The federal tax code allows state and local governments to use tax-exempt bonds to finance certain projects that would be considered private activities. The private activities that can be financed with tax-exempt bonds are called “qualified private activities.” Congress uses an annual state volume cap to limit the amount of tax-exempt bond financing generally and restricts the types of qualified private activities that would qualify for tax-exempt financing to selected projects defined in the tax code.
This report provides background information on the economic rationale for the federal limitation on tax-exempt bonds for private activities. In addition, this report explains the rules governing qualified private activity bonds, describes the federal limitations on private activity bonds, lists the qualified private activities, and reports each state’s private activity bond volume cap.
Since private activity bonds were defined in 1968, the number of eligible private activities has been gradually increased from 12 activities to 22. The state volume capacity limit has increased from $150 million and $50 per capita in 1986 to the greater of $273.775 million or $90 per capita in 2010. Because of the $273.775 million floor, many smaller states (21 states and the District of Columbia) are allowed to issue relatively more private activity bonds (based on the level of state personal income) than larger states (29 states). Also, more recent additions to the list of qualified activities have been exempt from a state-by-state cap and subject to a national aggregate cap.
For more on tax-exempt bonds generally, see CRS Report RL30638, Tax-Exempt Bonds: A Description of State and Local Government Debt, by Steven Maguire. This report will be updated as legislative events warrant.
Date of Report: September 10, 2010
Number of Pages: 20
Order Number: RL31457
Price: $29.95
Follow us on TWITTER at http://www.twitter.com/alertsPHP or #CRSreports
Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.
Specialist in Public Finance
The federal tax code classifies state and local bonds as either governmental bonds or private activity bonds. Governmental bonds are for projects that benefit the general public, and private activity bonds are for projects that primarily benefit private entities. Typically, the interest earned by holders of these bonds is exempt from federal income taxes.
The federal tax code allows state and local governments to use tax-exempt bonds to finance certain projects that would be considered private activities. The private activities that can be financed with tax-exempt bonds are called “qualified private activities.” Congress uses an annual state volume cap to limit the amount of tax-exempt bond financing generally and restricts the types of qualified private activities that would qualify for tax-exempt financing to selected projects defined in the tax code.
This report provides background information on the economic rationale for the federal limitation on tax-exempt bonds for private activities. In addition, this report explains the rules governing qualified private activity bonds, describes the federal limitations on private activity bonds, lists the qualified private activities, and reports each state’s private activity bond volume cap.
Since private activity bonds were defined in 1968, the number of eligible private activities has been gradually increased from 12 activities to 22. The state volume capacity limit has increased from $150 million and $50 per capita in 1986 to the greater of $273.775 million or $90 per capita in 2010. Because of the $273.775 million floor, many smaller states (21 states and the District of Columbia) are allowed to issue relatively more private activity bonds (based on the level of state personal income) than larger states (29 states). Also, more recent additions to the list of qualified activities have been exempt from a state-by-state cap and subject to a national aggregate cap.
For more on tax-exempt bonds generally, see CRS Report RL30638, Tax-Exempt Bonds: A Description of State and Local Government Debt, by Steven Maguire. This report will be updated as legislative events warrant.
Date of Report: September 10, 2010
Number of Pages: 20
Order Number: RL31457
Price: $29.95
Follow us on TWITTER at http://www.twitter.com/alertsPHP or #CRSreports
Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.
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