As discussed last week, the Obama administration has introduced proposals aimed at building America’s infrastructure. One of these proposals would create a new kind of bond – called “qualified public infrastructure bonds” – that could be used to finance water and sewer systems, among other types of infrastructure. As we said, the QPIBs would extend the benefits of municipal bonds to public-private partnerships (P3s), which are critical to water infrastructure project funding.

QPIBs, like private activity bonds (PAB)s, would be used to fund infrastructure projects (PABs have helped finance about $10 billion in projects to date), but depending on the form they take in the event they materialize, QPIBs may have greater potential for several reasons. First, PABs are available only for projects in which more than 10% of the bond issue’s proceeds are used for private business use, whereas QPIBs will not have that restriction. PABs are also subject to annual volume caps and have certain limitations which limit their appeal for infrastructure projects. Interest on PABs, for example, is exempt from tax only in certain circumstances, and is subject to the alternative minimum tax. And the proceeds of many PABs are required to be spent within specified periods. QPIBs are expected to be free of volume caps and other such restrictions, providing a truly flexible financing opportunity to municipalities and states.

The White House has said it will discuss the QPIBs in more detail in its budget release next month, and we are anxious to learn the details. We understand that of the $32.7 billion in 2013’s PAB volume cap, only $8.8 billion, or 27%, was used. So despite their potential, clearly PABs are vastly underutilized for reasons other than the volume cap. Given the tremendous need for new tools to leverage private capital and finance long-term, capital intensive water infrastructure projects all over the country, we are therefore all the more anxious to explore the potential of QPIBs. We will keep you updated as we learn more about these bonds and how they may help fill the water infrastructure funding gap.