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Tax-exempt private-activity bonds (PABs) are proven tools to mobilize public and private co-investment in affordable housing. States and cities use PABs to borrow on behalf of private companies and nonprofits, lowering borrowing costs for entities that might otherwise turn to corporate bonds or bank loans. Interest on PABs is not excluded from gross income unless it is a qualified bond, which must meet strict requirements and serve a public benefit—such as affordable rental housing or mortgage provisions for first-time lower-income borrowers.
Policymakers should pass legislation that broadens the availability of PABs by raising volume caps on states’ issuance capacity, expanding the scope of projects eligible for PAB financing, and giving states flexibility to choose which kinds of projects are in most need of tax-exempt bond assistance.
The Affordable Housing Credit Improvement Act (AHCIA) would finance nearly two million affordable homes over the next 10 years, partially by lowering the threshold of PAB financing needed—from 50% to 25%—to trigger the maximum amount of housing credits available to individual properties.
The AHCIA also aims to significantly expand and improve the application of the low-income housing tax credit (LIHTC).
President Biden’s budget proposal would also reduce the PAB financing requirement from 50% to 25% to leverage more private capital into LIHTC deals to encourage the construction of more affordable housing.
Separately, the Infrastructure Investment and Jobs Act, signed into law on November 15, 2021, increased the available PAB authority from $15 billion to $30 billion.
For more information and recent updates, reference our resources below.
