private activity bond

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Private Activity Bond

A tax-exempt municipal bond in which a local government entity is seeking to raise money for a private company. A municipality issues a private activity bond when it wishes to attract a business and the jobs it brings to the area, especially when the business may be otherwise unable to obtain financing for the project. The municipality issuing the bond must be able to prove that a public benefit derives from the private activity bond in order to qualify for tax-exempt status. Private activity bonds generally are not guaranteed by the revenue of the municipality.

private activity bond

A type of municipal bond issued when funds are to be used for a nonessential purpose. Private activity bonds pay taxable interest unless specifically exempted by the federal government. Private activities for which tax-exempt bonds may be issued include airports, electric and gas distribution systems, government mass transportation systems, hazardous waste disposal facilities, solid waste disposal facilities, and student loans. Small issues of industrial development revenue bonds and nonprofit college and hospital bonds are also permitted. Except for nonprofit college and hospital bonds, interest from tax-exempt private activity bonds is subject to the alternative minimum tax. Also called nonessential function bond, private purpose municipal bond. Compare essential function bond. See also 501(c)(3) bond, municipal bond, small-issue bond.
References in periodicals archive ?
Plenary Walsh Keystone Partnership's has concluded the issuance of approximately USD$800m of tax-exempt (subject to AMT) Private Activity Bonds (PABs) for the debt financing of its Pennsylvania Rapid Bridge Replacement Project.
QPIBs will expand the scope of private activity bonds (PABs) which are often issued by private companies in order to finance transportation and airport improvements.
CDT is targeting the majority of its remaining $101 million from the CDFI Bond Guarantee Program to acquire loans pools or tax-exempt private activity bonds originated by other affordable housing lenders across the country.
For Federal income tax purposes, investors who purchase governmental bonds and certain types of qualified private activity bonds are able to exclude the interest they earn from their gross incomes.
More specifically, the Act looks to expand financing options under TIFIA, strengthen the Railroad Rehabilitation and Improvement Financing Program and increase the availability of Private Activity Bonds.
Some 70 percent of the project's $6 billion price tag via tax-exempt private activity bonds, more than federal law allowed a company to borrow using that type of financing.
Municipal and private activity bonds are used to build schools, roads, bridges, hospitals, and develop blighted areas of the community.
In recent speeches, President Obama has proposed a "Partnership to Rebuild America" that calls for establishing a $10 billion National Infrastructure Bank, new America Fast Forward (AFF) Bonds, expansion of the Transportation Infrastructure Finance and Innovation Act (TIFIA) and Transportation Investment Generating Economic Recovery (TIGER) programs, lifting the national cap and expand eligibility for Private Activity Bonds (PABs), and changing the tax treatment of foreign pension funds to attract increased investment.
Information pertaining to major projects and financial tools such as private activity bonds and grant anticipation revenue vehicles is updated frequently, and the TIFIA interest rate is updated daily.
In some cases, even taxpayers subject to the alternative minimum tax may realize a higher yield from private activity bonds than from municipal bonds.
Private activity bonds or exempt facility bonds are a form of tax-exempt financing that encourages state and municipal governments to collaborate with sources of private capital to meet a public need.
For qualified small manufacturers, the state may issue tax-exempt private activity bonds.