Order Code RL34159
Private Activity Bonds: An Analysis of State Use,
2001 to 2005
September 5, 2007
Steven Maguire
Specialist in Public Finance
Government and Finance Division
Heather Negley
Information Research Specialist
Knowledge Services Group

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Private Activity Bonds: An Analysis of State Use,
2001 to 2005
Summary
State and local governments often issue debt instruments in exchange for the use
of individuals’ and businesses’ savings. This debt obligates state and local
governments to make interest payments for the use of these savings and to repay, at
some time in the future, the amount borrowed. State and local governments finance
capital facilities with debt rather than out of current tax revenue in order to match the
time pattern of benefits from these capital facilities with the time pattern of tax
payments.
The federal government subsidizes the cost of most state and local debt by
excluding the interest income from federal income taxation. This tax exemption of
interest income is granted because it is believed that state and local capital facilities
will be under-provided if state and local taxpayers have to pay the full cost.
Generally, state and local governments issue two types of tax-exempt bonds:
(1) governmental bonds and (2) private activity bonds. A portion of private activity
bonds are subject to a federally legislated state-specific annual limit. The annual
limit for each state is the greater of (1) state population from the previous year
multiplied by an inflation adjusted dollar amount ($85 in 2007); or (2) an inflation
adjusted annual minimum ($256.235 million in 2007). Most private activity bond
volume (64.9%), however, is not subject to the state volume cap. This report
identifies how each state, over the previous several years, has allocated private
activity bond volume, including abandoned volume capacity.
The report also discusses the expansion of the types of projects eligible for
private activity bond financing since 2001. Approximately $55 billion in new private
activity bond volume has been created by Congress over the 2001 to 2005 time
frame. A series of estimates by the Joint Committee on Taxation suggests that the
new bonds could reduce federal tax revenue by as much as $5.6 billion. In the 110th
Congress, various new proposals would further expand the types of private activities
eligible for tax-exempt financing and modify the rules for existing qualified private
activities. These proposals are listed and summarized in this report.
For more on tax-exempt bonds generally and private activity bonds specifically,
see CRS Report RL30638, Tax-Exempt Bonds: A Description of State and Local
Government Debt, and CRS Report RL31457, Private Activity Bonds: An
Introduction. For more on tax credit bonds, see CRS Report RS20606, Tax Credit
Bonds: A Brief Explanation. This report will be updated when new data become
available.

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Contents
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Governmental Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Private Activity Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Use of Private Activity Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Private Activity Bond Issuance by State . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Volume Cap on Private Activity Bonds . . . . . . . . . . . . . . . . . . . . . . . . . 7
Private Activity Bonds Subject to Volume Cap by State . . . . . . . . . . . . . . . . 9
Recent Private Activity Bond Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
List of Tables
Table 1. New Money, Private Activity Bond Volume, by Activity
and State, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 2. State Private Activity Bond Annual Volume Limits, 2001 to 2007 . . . . 7
Table 3. New Private Activity Bond Volume Created Since 2001 . . . . . . . . . . . . 8
Table 4. Comparison of IRS and Bond Buyer Private Activity Bond Data,
by State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Table 5. State Use of Private Activity Bond Volume Cap, 2001 to 2005 . . . . . . 11
Table 6. State Use of Private Activity Bond Volume Cap as Percent of Total,
2001 to 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

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Private Activity Bonds: An Analysis of State
Use, 2001 to 2005
Overview
Observers of the bond market group tax-exempt state and local government
bonds into two broad categories: governmental and private activity.1 Broadly
speaking, Congress limits the use of tax-exempt private activity bonds (PABs) to
selected activities. Recently, the opportunity to issue PABs has expanded as
Congress has increased the range of projects and activities that qualify for tax-exempt
status. This report focuses on state use of private activity bonds and the recently
added activities eligible for tax-exempt financing. Approximately $55 billion of
additional capacity has been added since 2001. In separate estimates, the Joint
Committee on Taxation (JCT) projected that these new provisions would reduce
federal tax revenue by approximately $5.6 billion over a 10-year period.2
In the 110th Congress, several legislative proposals have been introduced that
would likely expand the volume of private activity bonds. The next section describes
governmental and private activity bonds in more depth and is followed by a
presentation of recently published bond data. The last section discusses legislation.
Governmental Bonds
Governmental bonds are issued by state and local governments to finance
governmental activities and public infrastructure construction such as roads,
courthouses, and schools. The bonds are tax-exempt, meaning the holder does not
have to pay income taxes on the interest income earned on the bonds. There is no
federal limit on the volume of governmental bonds. In 2004, roughly 26,000
governmental bonds were issued, with a total volume of $330.4 billion.3
Private Activity Bonds
In contrast to governmental bonds, Congress places restrictions on the issuance
of private activity bonds (PABs) to limit their use . PABs are bonds where (1) more
1 Technically, private activity bonds that receive tax-exempt status are called qualified
private activity bonds. For this report, the modifier “qualified” has been dropped.
2 The $5.6 billion is the sum of each, separate, JCT revenue loss estimate as published in
their General Explanation documents for each respective Congress. Full citations are
available in the sources note for Table 3 of this report.
3 Cynthia Belmonte, “Tax-Exempt Bonds, 2003-2004,” SOI Bulletin, Fall 2006, vol. 26, no.
2.

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CRS-2
than 10% of the activity financed by the bonds is private activity and (2) more than
10% of the revenue used to repay the bonds is generated by activity at the financed
facility. Congress has identified a subset of private activities that can be financed
with tax-exempt bonds. The so-called qualified PABs, thus, are more like
governmental bonds. Some qualified PABs are subject to a federally imposed annual
state-by-state limit or “cap.” Other qualified PABs are subject to a national limit, a
separate state cap, or no cap at all.
The IRS reports that in 2004, total PAB volume was $47.9 billion and of that,
$16.6 billion was subject to the volume cap. Each state is free to select the mix of
qualified activities subject to the cap and to determine the total amount of private
activity bond volume. Most states use the total annual volume cap, though some
states do “abandon” capacity — that is, leave some capacity unused.
State use of PABs is of interest to Congress as the number of activities eligible
for tax-exempt financing has expanded significantly since 1986 and accelerated since
2001.4 If additional new activities are subject to the same cap as existing activities,
competition for cap space could limit the effectiveness of the tax preferences for
these activities. In addition, expanding the number of private activities eligible for
tax-exempt financing, particularly proposals with separate caps, may influence the
market for governmental bonds, as the new bonds would put upward pressure on
market interest rates. Higher interest rates, in turn, may constrain the ability of some
state and local governments to issue debt. And finally, issuing more tax-exempt
bonds would reduce federal revenues, contributing to a larger budget deficit.
Congressional action in the tax-exempt, private activity bond market will have a
disparate impact on the states, as each state has different objectives for PABs.
The next section uses two data sources to analyze the activities financed by
private activity bonds in each state. The first set of data, from the Internal Revenue
Service (IRS), examines all state and local bonds issued in 2004. The second set of
data, from a survey administered by the Bond Buyer publication, a unit of Thomson
Financial Inc., is more narrowly focused on bonds subject to the volume cap and
includes data for 2001 through 2005.
Use of Private Activity Bonds
Periodically, the Internal Revenue Service (IRS) compiles bond data contained
in the information return, Form 8038.5 This form is filed by issuers of tax-exempt
bonds. In 2004, the most recent year where IRS data are available, new money, long-
term governmental bonds raised a total of $157.7 billion, with $49.8 billion (31.6%)
used for education. Bonds identified as “new money” are in contrast to “refunding”
bonds. “New money” means the bond proceeds are to be used for a new project and
4 For more, see CRS Report RL31457, Private Activity Bonds: An Introduction, by Steven
Maguire.
5 IRS data are all from Cynthia Belmonte, “Tax-Exempt Bonds, 2003-2004,” SOI Bulletin,
Fall 2006, vol. 26, no. 2.

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CRS-3
are not used to retire outstanding debt. By comparison, also in 2004, state and local
governments issued $47.9 billion of long-term, new money, private activity bonds
(about 23.2% of new money, long-term tax-exempt debt). Most private activity bond
volume is issued for non-profit organizations ($26.728 billion; 55.8%). These bonds
are typically issued for non-profit hospitals and post secondary schools.
Private Activity Bond Issuance by State
Not all PABs are subject to the federally imposed cap. Notably, the bonds
issued for nonprofit activities are not subject to the volume cap (see Table 1). In
fact, the amount of private activity bonds subject to the state volume cap is
approximately one-third of total private activity bond volume (35.1% of the $47.9
billion). After bonds issued for non-profit organizations, the next two largest
categories are housing related bond issues. The variation among states, however, is
significant. The variation is due in part to the timing of large projects and the
preferences of citizens. For example, in Idaho, Montana, and Nebraska, over 50%
of private activity bond volume was used for mortgage bonds, considerably higher
than the average across all states of 10.58%.6
The IRS data in Table 1, though generally instructive, do not provide
sufficiently detailed information on the amount and allocation of private activity
bonds that are subject to the state-by-state volume cap to permit detailed analysis.
More detail about the bonds subject to the cap would help federal policymakers
analyze options for either expanding or reducing the private activities eligible for tax-
exempt financing.
6 26 U.S.C. § 143. Mortgage bond proceeds can be applied to the purchase, improvement,
or rehabilitation of owner-occupied residences.

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CRS-4
Table 1. New Money, Private Activity Bond Volume, by Activity and State, 2004
(“d” indicates IRS deleted the data to avoid possible disclosure of taxpayer information)
Hospital
Other
Residential
All Other
State
Mortgage
Airports
Water
Small Issue
501(c)(3)
501(c)(3)
Rental
Bonds*
US Total
3.3%
5.8%
11.6%
10.6%
1.4%
23.1%
32.7%
11.5%
Alabama
d
0.0%
d
0.0%
10.7%
20.0%
54.0%
0.0%
Alaska
0.0%
0.0%
0.0%
0.0%
0.0%
d
d
d
Arizona
0.0%
0.0%
14.5%
d
0.0%
42.1%
24.1%
d
Arkansas
d
d
8.2%
d
0.0%
8.2%
d
d
California
1.3%
3.8%
18.0%
8.7%
0.6%
10.5%
54.0%
3.1%
Colorado
d
7.5%
2.6%
d
1.1%
45.4%
26.4%
d
Connecticut
0.0%
0.0%
d
d
0.0%
26.5%
35.9%
0.0%
Delaware
0.0%
0.0%
0.0%
d
0.0%
d
d
d
District of Columbia
0.0%
d
d
0.0%
d
0.0%
14.7%
d
Florida
8.8%
11.6%
17.0%
2.4%
2.2%
22.1%
35.6%
0.3%
Georgia
2.0%
d
19.3%
d
2.0%
13.7%
35.1%
0.0%
Hawaii
d
d
d
d
d
d
d
d
Idaho
0.0%
0.0%
0.0%
91.6%
d
0.0%
d
0.0%
Illinois
d
d
14.2%
d
2.0%
32.5%
40.6%
0.0%
Indiana
16.0%
d
3.4%
d
1.0%
11.6%
22.5%
d
Iowa
0.0%
0.0%
0.0%
28.4%
9.2%
6.6%
53.1%
3.0%
Kansas
d
0.0%
d
22.7%
7.3%
25.3%
37.3%
0.0%
Kentucky
d
0.0%
d
d
d
42.5%
5.3%
d
Louisiana
d
d
d
16.8%
2.1%
18.8%
36.1%
d
Maine
d
0.0%
0.0%
d
9.9%
d
16.3%
0.0%

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CRS-5
Hospital
Other
Residential
All Other
State
Mortgage
Airports
Water
Small Issue
501(c)(3)
501(c)(3)
Rental
Bonds*
Maryland
d
0.0%
9.2%
7.8%
d
16.5%
64.3%
0.0%
Massachusetts
d
0.0%
13.0%
7.6%
2.1%
16.8%
51.5%
d
Michigan
d
0.0%
10.3%
0.0%
d
18.1%
19.0%
47.2%
Minnesota
d
0.0%
13.4%
13.7%
0.9%
29.4%
39.5%
d
Mississippi
d
d
7.8%
3.2%
d
d
4.5%
d
Missouri
0.0%
0.0%
19.1%
d
3.0%
9.5%
43.3%
d
Montana
0.0%
d
d
69.4%
0.0%
d
21.2%
0.0%
Nebraska
0.0%
d
0.0%
53.0%
2.1%
d
36.8%
0.0%
Nevada
d
d
8.7%
0.0%
d
d
d
d
New Hampshire
0.0%
0.0%
d
25.1%
0.0%
d
16.9%
d
New Jersey
4.3%
0.0%
d
d
2.2%
42.6%
32.6%
d
New Mexico
0.0%
d
14.6%
d
0.0%
48.6%
d
0.0%
New York
d
d
19.4%
6.0%
0.6%
9.5%
37.1%
25.9%
North Carolina
d
d
2.9%
8.9%
1.3%
31.6%
11.4%
d
North Dakota
0.0%
0.0%
d
d
d
0.0%
7.4%
0.0%
Ohio
10.1%
0.0%
5.1%
d
d
42.1%
37.5%
0.0%
Oklahoma
d
d
6.6%
10.5%
4.5%
d
17.8%
d
Oregon
0.0%
0.0%
11.5%
d
d
52.8%
17.2%
0.0%
Pennsylvania
10.1%
d
d
14.7%
1.7%
22.2%
32.4%
16.2%
Rhode Island
d
0.0%
d
d
d
6.2%
41.2%
d
South Carolina
d
0.0%
5.9%
d
0.0%
51.4%
12.4%
d
South Dakota
d
d
0.0%
d
2.4%
d
50.6%
0.0%
Tennessee
0.0%
0.0%
4.2%
d
0.7%
20.1%
20.7%
d

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CRS-6
Hospital
Other
Residential
All Other
State
Mortgage
Airports
Water
Small Issue
501(c)(3)
501(c)(3)
Rental
Bonds*
Texas
d
9.2%
20.2%
12.6%
d
20.1%
15.2%
15.0%
Utah
0.0%
0.0%
d
49.5%
0.0%
0.0%
0.0%
d
Vermont
0.0%
0.0%
d
20.0%
0.0%
38.4%
12.0%
d
Virginia
d
1.3%
4.8%
d
0.9%
32.9%
26.6%
0.0%
Washington
d
17.2%
19.6%
5.3%
d
22.0%
21.3%
d
West Virginia
0.0%
0.0%
d
32.2%
0.0%
59.1%
d
0.0%
Wisconsin
0.0%
d
d
13.8%
4.8%
37.5%
36.7%
0.0%
Wyoming
0.0%
0.0%
0.0%
d
0.0%
0.0%
0.0%
d
Source: CRS calculations based on data from: Cynthia Belmonte, “Tax-Exempt Bonds, 2003-2004,” SOI Bulletin, Fall 2006, vol. 26, no. 2.
*The “all other bonds” category includes all issues for which a specific purpose either did not apply or was not clearly indicated on the Form 8038 return, as well as bonds for: local furnishing of energy
or gas, local district heating or cooling facilities, hazardous waste facilities, facilities issued under a transitional rule of the TRA 1986, mass commuting facilities, qualified enterprise zone facility bonds,
qualified empowerment zone facility bonds, District of Columbia Enterprise Zone facility bonds, Liberty bonds, veterans’ mortgage bonds, student loan bonds, redevelopment bonds, and nongovernmental
output property bonds.

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CRS-7
The Volume Cap on Private Activity Bonds
The current structure of the annual limit on PABs was first implemented as part
of the Deficit Reduction Act of 1984 (P.L. 98-369). In that year, the statewide annual
volume cap was the greater of $150 per capita or $200 million. In 1986, in addition
to myriad other changes to the private activity bond rules and tax-exempt bonds more
generally, the Tax Reform Act of 1986 (TRA 1986, P.L. 99-514) reduced the volume
cap to the greater of $50 per capita or $150 million, effective in 1988. The volume
cap remained unchanged until 1998 when the Omnibus Appropriations Act of 1998
(OBRA98, P.L. 105-277) increased the volume cap to the greater of $55 per capita
or $165 million, beginning in 2003. The 1998 rules were superceded in 2000 by the
Community Renewal Tax Relief Act of 2000 (CRTRA, P.L. 106-554), which
indexed the per capita and minimum amounts for inflation.
Table 2 reports the per capita and minimum limits for 2001 through 2007 under
current law. States choose the greater of the per capita amount multiplied by state
population or the annual minimum amount. In most years, 21 less populous states
and the District of Columbia are subject to the annual minimum.7 If population
grows significantly faster than the cost of living index used to increase the cap, then
the per capita amount is determinative.
Table 2. State Private Activity Bond Annual Volume Limits,
2001 to 2007

States Choose the Greater of the Per Capita Amount
Multiplied by Population or the Minimum
Year
State Annual Minimum
Per Capita Amount
Amount
($ 000s)
2001
$62.50
$187,500
2002
$75.00
$225,000
2003
$75.00
$228,600
2004
$80.00
$233,795
2005
$80.00
$239,180
2006
$80.00
$246,610
2007
$85.00
$256,235
Percentage Change
36.00%
36.66%
2001 to 2007
Total for 2001 to 2005 period
$1,114,075
Source: 26 U.S.C § 146(d).
7 For all years except 2004, 21 states and the District were subject to the minimum. In 2004,
Iowa was subject to a higher population-based cap.

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CRS-8
The volume cap was originally introduced to limit the use of tax-exempt private
activity bonds and to encourage states to prioritize projects, as volume cap space was
intentionally scarce. Since 2001, however, Congress has enacted legislation creating
new types of private activities not subject to the existing state-by-state cap. Congress
has also allowed selected private activity bonds to “advance refund” existing debt
under the same recently passed legislation.8 The total new volume capacity of these
new private activity bonds is at least $54.8 billion (see Table 3). The new volume
authorized under the bond legislation enacted from 2001 to 2005 was $54.8 billion.
This amount is in addition to the pre-existing total volume cap available for all states
and the District of Columbia over the same time period of $119.6 billion (see Table
5).
Table 3. New Private Activity Bond Volume Created Since 2001
Estimated
New Volume
Year
Code
Revenue
Facility Purpose
Authorized
Authorized
Section
Loss
($ millions)
($ millions)
Public Educationa
2001
142(a)(13)
$15,000
$1,404
New York Liberty Zoneb
2002
1400L
$8,000
$1,714
Green Buildingc
2004
142(a)(13)
$2,000
$231
Highway and Surface
Transferd
2005
142(a)(13)
$15,000
$738
Gulf Opportunity Zonee
2005
1400N
$14,800
$1,556
Total
$54,800
$5,643
Sources: The revenue loss estimates are from: U.S. Congress, Joint Committee on Taxation, General
Explanation of Tax Legislation Enacted in the 107th Congress, 107th Cong., 2nd sess. (Washington:
GPO, 2003); U.S. Congress, Joint Committee on Taxation, General Explanation of Tax Legislation
Enacted in the 108th Congress, 108th Cong., 1st sess. (Washington: GPO, 2005); U.S. Congress, Joint
Committee on Taxation, General Explanation of Tax Legislation Enacted in the 109th Congress, 109th
Cong., 2nd sess. (Washington: GPO, 2007).
Notes:
a. Created by P.L. 107-16; the volume cap is $3 billion per year for five years (2001 to 2005) and the
revenue loss is for the 2001-2012 budget window.
b. Created by P.L. 107-147 and modified by P.L. 108-311. The revenue loss represents the original
cost (2001-2012 budget window) estimate plus the cost of the modification (2003-2014). The
advance refunding provisions in the two bills increased the revenue cost $1.03 billion and is not
included in the revenue loss reported in the table.
c. Created by P.L. 108-357.
8 Current refunding is the practice of issuing bonds to replace existing bonds. Issuers
typically do this to “lock-in” lower interest rates or more favorable borrowing terms.
Current refunding is allowed as long as the “old” bonds are redeemed within 90 days of the
issuance of the refunding bonds. Advance refunding is the practice of issuing new bonds
to replace existing bonds, but not immediately (within 90 days) retiring the old bonds. Thus,
two sets of tax-exempt bonds are outstanding for the same project.

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CRS-9
d
. Created by P.L. 109-59. The volume limit is to be split between highway projects and transfer
facility projects. The revenue loss is for the 2005-2016 budget window.
e. Created by P.L. 109-135. The volume limit is estimated based on the population of the three states
eligible for the bonds: Alabama ($2.2 billion); Louisiana ($7.8 billion); and Mississippi ($4.8
billion). The revenue loss is for the 2005-2016 budget window. The legislation includes an
advance refunding provision that would cost $741 million and is not reflected in the table
amount.
Private Activity Bonds Subject to Volume Cap by State
Table 4 compares the IRS data to the Bond Buyer data for 2004 and also reports
the 2005 Bond Buyer data. For each year, the Bond Buyer data is for bonds subject
to the cap. The difference between the two amounts is likely attributable to two
factors. First, the Bond Buyer data include the bond capacity carried forward from
previous years, and second, the definitions used by the Bond Buyer are not the same
as the IRS definitions. For more robust analysis, the IRS data would need to include
more detail on the type of activity financed, by state, but for taxpayer confidentiality
reasons, the IRS has not reported these data.9 Thus, to assess more than the
magnitude of private activity bond volume for each state, one must rely on data
provided by the Bond Buyer.
Table 5 reports the five-year total (2001 to 2005) amount of bonds allocated to
selected activities, by state, as reported by the Bond Buyer. The total volume
capacity is the sum of each year’s available capacity. The column marked “Housing”
includes bonds issued for (1) mortgages for single family residences, (2) multifamily
housing projects, (3) mortgage credit certificates, and (4) other unspecified housing
programs. The column labeled “industrial development bonds” (IDBs) is primarily
small issue bonds for manufacturing. The Bond Buyer “exempt facilities” category
includes the following: airports, commuter facilities, docks and wharves, sewer and
water facilities, and solid waste disposal facilities. Student loan bonds are used to
subsidize loans for qualified students.
Table 4. Comparison of IRS and Bond Buyer Private Activity
Bond Data, by State
(“d” indicates IRS deleted the data to avoid possible disclosure of taxpayer information)
2004 IRS Data
Bond Buyer Data
State
Total
Subject to
2004
2005
Volume
Cap
Cap Volume
Cap Volume
US Total
47,877
16,648
23,178.7
21,941.9
Alabama
150
39
36.6
20.9
Alaska
165
32
186.2
162.8
Arizona
744
253
396.9
486.4
Arkansas
257
217
285.6
181.2
California
5,859
1,846
2,164.4
2,429.7
Colorado
1,214
251
411.7
381.9
Connecticut
287
109
246.7
276.1
Delaware
189
69
68.6
96.5
D.C.
360
47
58.5
11.5
Florida
1,626
493
1,356.2
861.0
9 IRS data are from Cynthia Belmonte, “Tax-Exempt Bonds, 2003-2004,” SOI Bulletin, Fall
2006, vol. 26, no. 2., footnotes to Figure J, p. 259.

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CRS-10
2004 IRS Data
Bond Buyer Data
State
Total
Subject to
2004
2005
Volume
Cap
Cap Volume
Cap Volume
Georgia
2,008
481
458.3
323.7
Hawaii
d
d
30.0
0.0
Idaho
131
124
0.0
109.2
Illinois
2,023
436
914.1
784.6
Indiana
1,340
425
548.7
439.1
Iowa
303
114
246.8
256.8
Kansas
300
111
211.1
239.2
Kentucky
487
253
478.1
388.2
Louisiana
613
208
270.3
172.3
Maine
141
117
136.8
371.4
Maryland
1,150
221
194.4
275.3
Massachusetts
1,671
520
632.4
394.7
Michigan
1,114
698
1,261.8
536.6
Minnesota
954
297
310.8
471.9
Mississippi
308
128
159.1
202.2
Missouri
854
403
483.2
629.9
Montana
193
139
499.5
68.3
Nebraska
234
129
125.6
145.4
Nevada
587
68
126.6
175.3
New Hampshire
343
205
321.4
356.3
New Jersey
1,039
249
600.3
485.1
New Mexico
329
128
347.0
234.6
New York
4,748
1,295
1,262.0
1,875.8
North Carolina
1,189
591
652.1
653.8
North Dakota
121
113
116.6
175.3
Ohio
2,003
408
406.6
771.0
Oklahoma
286
153
371.8
248.6
Oregon
844
252
247.5
87.8
Pennsylvania
2,110
930
1,140.9
659.3
Rhode Island
357
189
321.8
4.3
South Carolina
917
332
499.6
303.5
South Dakota
170
48
42.9
451.0
Tennessee
1,106
655
615.7
396.5
Texas
2,418
1,231
1,641.5
1,618.2
Utah
220
220
333.7
214.9
Vermont
466
231
518.3
198.5
Virginia
1,175
460
299.5
1,003.5
Washington
1,209
418
563.0
429.0
West Virginia
264
89
250.3
142.2
Wisconsin
1,040
223
178.1
396.9
Wyoming
101
d
149.1
343.7
Source: IRS data are from Cynthia Belmonte, “Tax-Exempt Bonds, 2003-2004,” SOI Bulletin, Fall
2006, vol. 26, no. 2. The Bond Buyer data are from “State Allocations and Use of Private Activity
Bonds in 2004,” The Bond Buyer, May 2, 2005, p. 7; and “State Allocations and Use of Private
Activity Bonds in 2005,” The Bond Buyer, May 1, 2006, p. 7.
The “carryforward” and “abandon capacity” columns are important in
understanding state allocations. Under current law, states can reserve unused
capacity and add the amount to the next year.10 Capacity can be carried forward up
to three years, and states will often use the carry forward to finance large projects that
may exceed the annual cap. The total accumulated carryforward to 2006 was $26.3
billion for all states and territories. Because the carryforward amount includes
10 26 U.S.C. § 146(f)(3).

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CRS-11
allocations from more than one year, the “percent of total” amounts in Table 6 do not
sum to 100%. The District of Columbia allocated the largest carryforward to 2006,
75.6% of the total cap available. The average carryforward was 22.0%.
The last category is abandon capacity. Just as the name implies, abandon
capacity is the volume capacity the state did not allocate within three years. For the
2001 to 2005 time period, $2.4 billion was abandon capacity or just 2.0% of all
capacity. Delaware abandoned the most, $446.5 million, or approximately 40% of
the state’s available capacity (and about one-fifth of the U.S. total abandon capacity).
In contrast, 23 states did not abandon any capacity over the 2001 to 2005 period.
Some could argue that states that abandoned a significant amount of capacity
in the past would seem unlikely to change behavior and begin authorizing the use of
tax-exempt debt to finance new projects. Alternatively, the newly created range of
tax-exempt bonds for new projects may entice states to use capacity that would have
otherwise been abandoned. The distribution of abandon capacity could be
instructive.
From 2001 to 2005, 20 states and the District of Columbia were subject to the
cumulative volume capacity minimum of $1,114.1 million over those five years (see
Table 2). These are the less populous states where the statutory annual minimum
amount was greater than the population based minimum. In these states, the abandon
capacity was roughly 2.31% of capacity ($1.3 billion); the 30 more populous states
abandoned considerably less (0.87% or $1.1 billion). From these data, it appears the
volume cap is relatively less binding for the less populous states; there is “excess
capacity” in these states. Thus, increasing or expanding the amount available for new
projects would be relatively less effective in inducing new investment in less
populous states relative to more populous states.
Table 5. State Use of Private Activity Bond Volume Cap,
2001 to 2005
(in $ millions)
IDB
Carry-
Total
—
Exempt
Student
Abandon
State
Housing
forward
Cap*
Small
Facility
Loan
Capacity
to 2006
Issue
US Total
119,562.9
56,159.5
6,367.3
12,887.2
17,303.0
26,337.1
2,401.8
Alabama
1,671.7
152.8
148.9
115.9
0.0
1,100.3
48.1
Alaska
1,114.1
396.9
0.0
148.1
192.2
450.7
90.6
Arizona
2,033.9
1,122.2
16.2
378.9
474.8
45.5
73.4
Arkansas
1,114.1
332.2
98.5
137.1
299.9
234.0
176.0
California
13,048.5
9,054.5
213.4
1,081.5
837.9
1,378.7
9.9
Colorado
1,670.3
1,045.1
59.7
154.8
394.3
165.6
0.0
Connecticut
1,288.2
1,122.0
23.9
18.3
75.0
127.1
41.1
Delaware
1,114.1
306.2
4.5
15.4
0.0
686.2
446.5
D.C.
1,114.1
440.1
15.0
0.0
0.0
842.4
142.2
Florida
6,235.4
2,505.1
323.1
707.1
984.2
2,031.6
280.8
Georgia
3,183.6
1,693.5
233.8
197.1
0.0
1,015.0
116.4
Hawaii
1,114.1
82.6
0.0
40.0
50.0
651.8
138.4
Idaho
1,114.1
461.8
26.7
20.0
20.0
359.9
0.0
Illinois
4,641.1
1,333.4
479.8
154.7
89.0
283.5
0.0
Indiana
2,295.2
1,063.8
435.7
557.2
231.7
60.0
0.0
Iowa
1,115.8
524.0
70.4
77.9
229.4
142.3
0.0
Kansas
1,114.1
947.0
98.3
36.8
0.0
0.0
0.0

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CRS-12
IDB
Carry-
Total
—
Exempt
Student
Abandon
State
Housing
forward
Cap*
Small
Facility
Loan
Capacity
to 2006
Issue
Kentucky
1,525.6
821.8
63.4
338.5
473.4
22.7
0.0
Louisiana
1,671.4
518.1
118.3
199.7
381.6
188.8
55.8
Maine
1,114.1
517.0
132.1
0.0
225.0
311.2
0.0
Maryland
2,028.8
1,007.3
66.3
40.6
0.0
1,040.3
74.1
Massachusetts
2,385.7
1,153.0
184.2
372.9
683.6
140.4
0.0
Michigan
3,739.7
840.2
241.7
582.9
1,575.1
714.9
16.0
Minnesota
1,869.8
1,458.8
72.6
58.4
127.4
194.6
0.0
Mississippi
1,114.1
341.6
62.0
79.7
183.7
438.2
3.8
Missouri
2,114.1
1,016.1
103.9
205.0
398.8
338.6
18.0
Montana
1,114.1
607.5
3.0
178.0
394.1
322.0
0.0
Nebraska
1,114.1
441.5
54.5
0.0
0.0
660.8
0.0
Nevada
1,114.1
371.7
77.9
93.5
0.0
323.8
32.3
New Hampshire
1,114.1
523.7
36.4
243.0
440.0
179.5
0.0
New Jersey
3,193.5
805.6
225.6
502.7
846.0
794.2
158.4
New Mexico
1,114.1
704.9
23.0
109.7
408.7
4.7
0.0
New York
7,122.1
5,352.4
183.9
106.3
0.0
1,014.5
0.0
North Carolina
3,096.9
582.8
176.2
394.5
1,056.6
546.6
83.3
North Dakota
1,114.1
574.6
3.7
15.0
1.0
642.0
31.3
Ohio
4,250.8
1,357.4
381.1
417.0
348.4
1,766.9
10.4
Oklahoma
1,300.0
728.7
55.9
218.0
333.1
108.0
0.1
Oregon
1,310.8
783.5
52.6
79.5
0.0
387.1
0.0
Pennsylvania
4,595.9
1,315.4
663.5
1,292.2
745.0
1,156.3
0.0
Rhode Island
1,114.1
477.0
20.1
100.1
370.1
234.9
0.0
South Carolina
1,510.3
386.2
113.0
347.8
502.0
237.4
52.3
South Dakota
1,114.1
697.3
18.8
0.0
0.0
457.4
214.8
Tennessee
2,160.3
680.7
67.6
240.4
811.2
549.9
0.0
Texas
8,104.8
3,955.1
204.9
1,657.9
1,443.9
940.7
39.7
Utah
1,114.1
581.0
46.9
85.4
410.3
52.9
0.0
Vermont
1,114.1
350.1
13.0
209.2
676.9
99.0
9.0
Virginia
2,716.2
1,684.3
116.9
156.7
0.0
703.2
28.9
Washington
2,259.5
1,148.4
101.8
358.4
428.7
304.5
0.0
West Virginia
1,114.1
373.8
171.8
82.2
0.0
621.6
0.0
Wisconsin
2,026.9
881.2
195.3
51.0
0.0
909.6
10.2
Wyoming
1,114.1
537.6
67.5
230.2
160.0
355.3
0.0
Source: Author calculations based on Bond Buyer data.
Note: *Does not include the new volume created by legislation identified in Table 3 of this report.
Table 6. State Use of Private Activity Bond Volume Cap as
Percent of Total, 2001 to 2005
IDB —
Carry-
Exempt
Student
Abandon
State
Housing
Small
forward
Facility
Loan
Capacity
Issue
to 2006
US Total
47.0%
5.3%
10.8%
14.5%
22.0%
2.0%
Alabama
9.1%
8.9%
6.9%
0.0%
65.8%
2.9%
Alaska
35.6%
0.0%
13.3%
17.3%
40.5%
8.1%
Arizona
55.2%
0.8%
18.6%
23.3%
2.2%
3.6%
Arkansas
29.8%
8.8%
12.3%
26.9%
21.0%
15.8%
California
69.4%
1.6%
8.3%
6.4%
10.6%
0.1%
Colorado
62.6%
3.6%
9.3%
23.6%
9.9%
0.0%
Connecticut
87.1%
1.9%
1.4%
5.8%
9.9%
3.2%
Delaware
27.5%
0.4%
1.4%
0.0%
61.6%
40.1%
D.C.
39.5%
1.3%
0.0%
0.0%
75.6%
12.8%
Florida
40.2%
5.2%
11.3%
15.8%
32.6%
4.5%
Georgia
53.2%
7.3%
6.2%
0.0%
31.9%
3.7%

---

CRS-13
IDB —
Carry-
Exempt
Student
Abandon
State
Housing
Small
forward
Facility
Loan
Capacity
Issue
to 2006
Hawaii
7.4%
0.0%
3.6%
4.5%
58.5%
12.4%
Idaho
41.5%
2.4%
1.8%
1.8%
32.3%
0.0%
Illinois
28.7%
10.3%
3.3%
1.9%
6.1%
0.0%
Indiana
46.3%
19.0%
24.3%
10.1%
2.6%
0.0%
Iowa
47.0%
6.3%
7.0%
20.6%
12.8%
0.0%
Kansas
85.0%
8.8%
3.3%
0.0%
0.0%
0.0%
Kentucky
53.9%
4.2%
22.2%
31.0%
1.5%
0.0%
Louisiana
31.0%
7.1%
11.9%
22.8%
11.3%
3.3%
Maine
46.4%
11.9%
0.0%
20.2%
27.9%
0.0%
Maryland
49.7%
3.3%
2.0%
0.0%
51.3%
3.7%
Massachusetts
48.3%
7.7%
15.6%
28.7%
5.9%
0.0%
Michigan
22.5%
6.5%
15.6%
42.1%
19.1%
0.4%
Minnesota
78.0%
3.9%
3.1%
6.8%
10.4%
0.0%
Mississippi
30.7%
5.6%
7.2%
16.5%
39.3%
0.3%
Missouri
48.1%
4.9%
9.7%
18.9%
16.0%
0.9%
Montana
54.5%
0.3%
16.0%
35.4%
28.9%
0.0%
Nebraska
39.6%
4.9%
0.0%
0.0%
59.3%
0.0%
Nevada
33.4%
7.0%
8.4%
0.0%
29.1%
2.9%
New Hampshire
47.0%
3.3%
21.8%
39.5%
16.1%
0.0%
New Jersey
25.2%
7.1%
15.7%
26.5%
24.9%
5.0%
New Mexico
63.3%
2.1%
9.8%
36.7%
0.4%
0.0%
New York
75.2%
2.6%
1.5%
0.0%
14.2%
0.0%
North Carolina
18.8%
5.7%
12.7%
34.1%
17.6%
2.7%
North Dakota
51.6%
0.3%
1.3%
0.1%
57.6%
2.8%
Ohio
31.9%
9.0%
9.8%
8.2%
41.6%
0.2%
Oklahoma
56.1%
4.3%
16.8%
25.6%
8.3%
0.0%
Oregon
59.8%
4.0%
6.1%
0.0%
29.5%
0.0%
Pennsylvania
28.6%
14.4%
28.1%
16.2%
25.2%
0.0%
Rhode Island
42.8%
1.8%
9.0%
33.2%
21.1%
0.0%
South Carolina
25.6%
7.5%
23.0%
33.2%
15.7%
3.5%
South Dakota
62.6%
1.7%
0.0%
0.0%
41.1%
19.3%
Tennessee
31.5%
3.1%
11.1%
37.6%
25.5%
0.0%
Texas
48.8%
2.5%
20.5%
17.8%
11.6%
0.5%
Utah
52.1%
4.2%
7.7%
36.8%
4.7%
0.0%
Vermont
31.4%
1.2%
18.8%
60.8%
8.9%
0.8%
Virginia
62.0%
4.3%
5.8%
0.0%
25.9%
1.1%
Washington
50.8%
4.5%
15.9%
19.0%
13.5%
0.0%
West Virginia
33.6%
15.4%
7.4%
0.0%
55.8%
0.0%
Wisconsin
43.5%
9.6%
2.5%
0.0%
44.9%
0.5%
Wyoming
48.3%
6.1%
20.7%
14.4%
31.9%
0.0%
Source: Author calculations based on Bond Buyer data.
Note: The carryforward amount includes allocations from more than one year, thus, the “percent of
total” amounts do not sum to 100%.
Recent Private Activity Bond Legislation
Members of the 110th Congress have enacted one private activity bond law and
introduced several bills that would change the tax treatment of state and local bonds
issued to finance private activities. These activities include housing, construction of
research park facilities, renewable energy and recycling initiatives, and agriculture.

---

CRS-14
On May 25, 2007, the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery,
and Iraq Accountability Appropriations Act (H.R. 2206, P.L. 110-28) was enacted.
The legislation relaxes the tax-exempt mortgage revenue bond rules for repairs and
reconstruction of homes in the areas affected by the 2005 Hurricanes Katrina, Rita,
and Wilma. The underlying bonds are subject to the volume limits that apply to
Qualified Gulf Opportunity Bonds and do not create additional capacity.
The Katrina Housing Tax Relief Act of 2007 (H.R. 1562) would extend, to the
end of 2010, tax-exempt mortgage revenue bonds issued to finance rehabilitation
loans for repair and reconstruction of homes in areas devastated by Hurricane
Katrina. The legislation passed the House on March 27, 2007, by voice vote. The
Senate has not yet acted on the legislation.
Two companion bills, the Research and Development Tax Credit Act of 2007
(H.R. 1712) and the Research Competitiveness Act of 2007 (S. 41), would allow the
issuance of tax-exempt facility bonds for research park facilities used in connection
with research and experimentation. These bonds would be subject to the existing
state volume cap. Similarly, the Rural Community Renewable Energy Bonds Act (S.
672) would allow the issuance of tax-exempt small issue bonds to finance qualified
renewable energy facilities. The tax-exempt bonds created by S. 672 would not be
subject to a volume cap.
Two bills would allow bonds that are guaranteed by the federal government and
by the quasi-federal home loan bank to also be tax-exempt. Generally, federally
guaranteed debt cannot be tax-exempt. H.R. 1959 would permit interest on federally
guaranteed water, wastewater, and essential community facilities loans to be tax
exempt. H.R. 2091 would allow the federal home loan banks (FHLBs) to guarantee
tax-exempt bonds. FHLBs guarantees would likely be used for bonds issued by state
and local governments, or private entities acting on behalf of state and local
governments, such as water and sewer authorities. In the Senate, S. 1963 would also
allow bonds guaranteed by the FHLB to be tax-exempt.
Under H.R. 2110, tax-exempt small issue bonds could be used to finance the
purchase of property or land used primarily for the processing of agricultural
products. These bonds would be subject to the state volume cap.
The Spaceport Equality Act of 2007 (H.R. 2285 and S. 1355) would create a
new facility eligible for tax-exempt financing: spaceports. The new bonds would not
be subject to the state volume cap as long as the facility is government owned. The
tax treatment of the new bonds would be similar to that for airports.
The Empowerment Zone and Renewal Community Enhancement Act of 2007
(H.R. 2578 and S. 1627) would expand the empowerment zone and enterprise
community program by creating “rural enterprise communities.” Each community
would be subject to an individual volume limit of $200 million, but they would not
be subject to the state volume cap. The legislation also does not include a national
cap.
The Clean Air and Water Investment Act of 2007 (H.R. 2812) would create a
new qualified exempt facility: air or water pollution control facilities. The legislation

---

CRS-15
identifies such facilities as those intended “...to abate or control water or atmospheric
pollution or contamination by removing, altering, disposing, or storing pollutants,
contaminants, wastes, or heat....” The bonds would be subject to the state volume
cap.
The Tribal Government Tax-Exempt Bond Parity Act of 2007 (H.R. 3164 and
S. 1850) would expand the range of activities that tribal governments can use tax-
exempt debt to finance. Under current law, tribal governments can use tax-exempt
bonds to finance spending on “essential government services,” but not other
activities. However, no consistent definition of essential government service has
been identified. The legislation defines “essential government service” as “...any
function which is performed by a State or local government with general taxing
powers.” Qualified private activities would likely not be included in essential
government function under this definition.
The Recycling Investment Saves Energy Act (S. 1587) would allow for the tax-
exempt bond financing of qualified recycling facilities. The tax-exempt bonds issued
to finance these facilities would be subject to the state volume cap.
The Community Forestry Conservation Act of 2007 (S. 1952) would allow the
issuance of $10 billion in tax-exempt bonds to finance the purchase and conservation
of forests by qualified organizations as defined in the legislation. The bonds would
be allocated by region and would not be subject to the state volume cap.

---