By Rich Anderson
May 9, 2005

Florida Congressman E. Clay Shaw introduced H.R. 1708 — a bill that would amend the Internal Revenue Code of 1986 to remove the state volume caps for Private Activity Bonds used to finance public purpose water and sewerage facilities. Shaw introduced the bill April 19, and it was referred to the House Ways and Means Committee.

This legislation is important to cities because it would provide an alternative source of financing for much needed water and wastewater infrastructure investment. Removal of state volume caps for water and wastewater infrastructure will make lower interest capital available to local government. It would ""enable municipalities, water districts, investor owned utilities, public-private partnerships, rural water corporations, and river authorities to upgrade the nation's critical water and wastewater infrastructure at the lowest possible cost and comply with federal mandates," as stated in the legislative findings.

The American Society of Civil Engineers reports that water and sewer infrastructure in the United States is in serious disrepair. The EPA estimates that more than $500 billion is needed to rehabilitate and construct new water and sewer infrastructure in order to comply with existing law over the next 20 years. The Association of Metropolitan Sewerage Authorities testified before Congress that local government is responsible for as much as 90 percent of annual investment in public water and sewerage infrastructure, but it is common knowledge that the planned investment will fall far short of what is estimated by EPA. Liberalizing the use of Private Activity Bonds (PABs) adds another financing tool for cities that might not otherwise be able to finance projects. The PAB alternative could -fast-forward- local government investment.

Sugar Land (TX) Mayor David G. Wallace states, "With the various federal, state and local budget pressures, we, as municipal leaders, must look to the private sector to help fund the billions of dollars of water and wastewater infrastructure needs. We cannot continue to have our hand out to the public sector for this required funding, and the private capital markets are more than willing to fund such investment, provided the caps to PAB's are lifted."

The Conference of Mayors has supported similar legislation in the 107th and 108th Congress. Those past legislative proposals ultimately failed, because they did not enjoy strong bipartisan support. The prospects for success with H.R. 1708 are different because the author of the bill has reached out to both sides of the aisle to garner bipartisan support. The bill currently has four co'sponsors: Representatives Mike Turner (OH), Phil English (PA), Jim Davis (FL), and Mike Thompson (CA). Shaw is also an influential member of the House Ways and Means Committee — a critical factor in favor of the legislation.

Patrick Cairo, Vice President of United Water states that, "Elimination of the cap on PABs will permit cities and private firms to create stronger public-private partnerships to provide needed improvements to our nation's water and sewer facilities. It also will allow public and private partners to access lower cost capital and help avoid placing the burden of additional debt on cities." Public ownership of public water infrastructure, as well as public control of water rates and user charges, would not change. The bill limits the use of PABs to finance new water and sewer infrastructure and rehabilitation of existing infrastructure. The use of the PABs would not be allowed to merely refinance existing investor owned utilities (water treatment facilities).