Private Activity Bonds: An Analysis of State Use, 2001 to 2006

Private Activity Bonds: An Analysis of State Use, 2001 to 2006

Order Code RL34159
Private Activity Bonds: An Analysis of State Use,
2001 to 2006
Updated April 25, 2008
Steven Maguire
Specialist in Public Finance
Government and Finance Division
Heather Durkin Negley
Information Research Specialist
Knowledge Services Group

Private Activity Bonds: An Analysis of State Use,
2001 to 2006
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 2008); or (2) an inflation
adjusted annual minimum ($262.095 million in 2008). Most private activity bond
volume (62.4%), 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 since 2001. A series of estimates
by the Joint Committee on Taxation suggests that the new bonds would 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. A selected
group of legislative proposals are listed and summarized in this report including the
proposed additional $10 billion in private activity bond capacity for housing.
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, by Steven Maguire, and CRS Report RL31457, Private Activity
Bonds: An Introduction, by Steven Maguire. For more on tax credit bonds, see CRS
Report RS20606, Tax Credit Bonds: A Brief Explanation, by Steven Maguire. This
report will be updated when new data become available.

Contents
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Governmental Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Private Activity Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
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
Selected Private Activity Bond Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Housing Related Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Economic Development Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Infrastructure Investment Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Environmental and Conservation Proposals . . . . . . . . . . . . . . . . . . . . . . . . 16
Other Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
List of Tables
Table 1. New Money, Private Activity Bond Volume,
by Activity and State, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 2. State Private Activity Bond Annual Volume Limits, 2001 to 2008 . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Table 5. State Use of Private Activity Bond Volume Cap, 2001 to 2006 . . . . . . 12
Table 6. State Use of Private Activity Bond Volume Cap as Percent of Total,
2001 to 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Private Activity Bonds: An Analysis of State
Use, 2001 to 2006
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 including housing stimulus
legislation that would increase housing PAB volume by $10 billion (H.R. 5720 and
H.R. 3221). 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 2005, roughly 19,591
governmental bonds were issued, with a total volume of $311.3 billion.3 This total
includes “new money” and bonds used to refund outstanding debt. In 2005, 14,939
“new money” bonds were issued with a face value of $151 billion. Refunding bonds
are typically issued during periods of relatively low interest rates.
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, 2005,” SOI Bulletin, Fall 2007, vol. 27, no. 2.

CRS-2
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
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 2005, total PAB “new money” volume was $54.7 billion
and of that, $20.5 billion was subject to the volume cap. Each state is free to select
the mix of qualified activities and to determine the total amount of private activity
bond volume under the cap. 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 2005. 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 2006.
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
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, 2005,” SOI Bulletin, Fall
(continued...)

CRS-3
bonds. In 2005, the most recent year where IRS data are available, new money, long-
term governmental bonds raised a total of $151.6 billion, with $53.4 billion (35.3%)
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
are not used to retire outstanding debt. By comparison, also in 2005, state and local
governments issued $54.7 billion of long-term, new money, private activity bonds
(about 26.5% of new money, long-term tax-exempt debt). Most private activity bond
volume is issued for non-profit organizations and hospitals ($27.969 billion).
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, just over half of the amount of private activity bonds are subject to the state
volume cap (55% of the $54.7 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.
5 (...continued)
2007, vol. 27, no. 2.
6 26 U.S.C. § 143. Mortgage bond proceeds can be applied to the purchase, improvement,
or rehabilitation of owner-occupied residences.

CRS-4
Table 1. New Money, Private Activity Bond Volume, by Activity and State, 2005
(“d” indicates IRS deleted the data to avoid possible disclosure of taxpayer information)
Percent of Total Amount Issued in 2005
Total Amount
Water,
State
Issued
Airports,
Sewage, &
Residential
501(c)(3)
All Other
(in millions)
Docks, and
Mortgage
Small Issue
Hospital
Solid Waste
Rental
Nonhospital
Bondsa
Wharves
Disposal
US Total
$54,691
6.0%
3.4%
11.8%
12.1%
1.3%
22.4%
28.8%
14.3%
Alabama
$244
0.0%
0.0%
d
0.0%
d
45.1%
46.3%
0.0%
Alaska
$229
0.0%
0.0%
d
0.0%
0.0%
0.0%
d
d
Arizona
$1,562
0.0%
10.9%
d
7.2%
0.0%
68.1%
2.6%
d
Arkansas
$292
0.0%
d
0.0%
0.0%
0.0%
d
14.7%
d
California
$4,804
1.8%
5.1%
30.0%
2.0%
0.5%
23.1%
30.7%
6.7%
Colorado
$1,319
0.0%
0.0%
9.1%
6.6%
d
27.5%
45.3%
d
Connecticut
$776
0.0%
d
d
27.6%
0.0%
0.0%
66.1%
d
Delaware
$189
0.0%
0.0%
d
d
0.0%
39.7%
d
d
District of Columbia
$1,000
d
0.0%
16.3%
0.0%
0.0%
d
20.8%
d
Florida
$2,004
10.3%
d
12.3%
5.8%
2.7%
21.5%
42.6%
d
Georgia
$1,757
d
d
9.4%
d
2.8%
39.6%
44.5%
d
Hawaii
d
d
d
d
d
d
d
d
d
Idaho
$259
0.0%
d
0.0%
57.9%
d
d
4.2%
0.0%
Illinois
$1,960
d
d
13.3%
11.8%
2.6%
21.9%
47.6%
0.0%
Indiana
$1,668
d
11.8%
d
d
2.2%
55.1%
13.6%
d
Iowa
$510
0.0%
d
d
28.8%
4.7%
28.4%
20.4%
15.9%
Kansas
$185
0.0%
d
d
57.8%
9.2%
d
15.7%
0.0%
Kentucky
$538
d
7.2%
9.5%
25.7%
d
18.0%
16.4%
d
Louisiana
$596
d
d
d
28.7%
0.0%
34.9%
2.2%
d

CRS-5
Percent of Total Amount Issued in 2005
Total Amount
Water,
State
Issued
Airports,
Sewage, &
Residential
501(c)(3)
All Other
(in millions)
Docks, and
Mortgage
Small Issue
Hospital
Solid Waste
Rental
Nonhospital
Bondsa
Wharves
Disposal
Maine
$300
d
d
12.7%
38.0%
d
0.0%
27.0%
d
Maryland
$914
0.0%
0.0%
14.3%
14.3%
d
d
67.0%
0.0%
Massachusetts
$1,782
d
0.0%
6.4%
d
1.5%
33.1%
43.2%
d
Michigan
$2,320
d
d
5.1%
0.0%
1.2%
37.3%
8.8%
23.6%
Minnesota
$1,258
d
d
9.3%
14.7%
1.4%
17.4%
44.9%
6.0%
Mississippi
$217
d
0.0%
d
d
8.8%
d
d
d
Missouri
$1,320
d
d
16.4%
12.1%
1.1%
34.6%
18.0%
d
Montana
$86
0.0%
0.0%
0.0%
d
0.0%
0.0%
d
0.0%
Nebraska
$248
0.0%
d
0.0%
d
0.8%
18.1%
43.5%
0.0%
Nevada
$359
0.0%
d
12.5%
0.0%
0.0%
39.3%
d
d
New Hampshire
$357
0.0%
21.8%
d
33.9%
0.0%
0.0%
17.1%
d
New Jersey
$1,274
0.0%
2.4%
9.8%
d
3.3%
20.1%
43.0%
d
New Mexico
$246
0.0%
0.0%
16.7%
d
d
d
0.0%
d
New York
$6,823
16.2%
0.9%
22.0%
4.0%
0.3%
5.1%
21.1%
30.4%
North Carolina
$1,611
d
d
d
d
1.0%
17.9%
23.5%
d
North Dakota
$244
0.0%
0.0%
0.0%
d
d
16.8%
11.1%
0.0%
Ohio
$1,518
d
5.3%
3.2%
d
1.6%
23.5%
34.0%
d
Oklahoma
$404
0.0%
0.0%
d
18.1%
0.2%
d
45.0%
d
Oregon
$333
0.0%
0.0%
24.0%
0.0%
d
d
46.5%
d
Pennsylvania
$2,937
d
5.7%
d
11.3%
2.6%
28.7%
43.4%
d
Rhode Island
$314
d
0.0%
d
d
d
d
53.8%
0.0%
South Carolina
$417
0.0%
d
9.4%
d
d
0.0%
15.3%
d

CRS-6
Percent of Total Amount Issued in 2005
Total Amount
Water,
State
Issued
Airports,
Sewage, &
Residential
501(c)(3)
All Other
(in millions)
Docks, and
Mortgage
Small Issue
Hospital
Solid Waste
Rental
Nonhospital
Bondsa
Wharves
Disposal
South Dakota
$456
0.0%
0.0%
0.0%
95.6%
1.1%
0.0%
3.3%
0.0%
Tennessee
$911
d
0.0%
8.1%
19.2%
d
d
36.8%
d
Texas
$2,821
d
3.2%
18.5%
2.8%
d
20.9%
22.0%
31.0%
Utah
$543
0.0%
0.0%
d
23.0%
d
0.0%
51.2%
d
Vermont
$214
0.0%
0.0%
7.5%
d
0.0%
d
6.1%
d
Virginia
$1,821
6.5%
d
10.7%
d
0.5%
23.8%
16.1%
d
Washington
$1,199
d
3.8%
21.2%
d
1.2%
16.8%
37.1%
10.3%
West Virginia
$240
0.0%
0.0%
d
42.5%
d
45.8%
d
d
Wisconsin
$888
d
d
2.8%
38.4%
2.5%
26.1%
25.2%
0.0%
Wyoming
$378
0.0%
d
0.0%
37.8%
0.0%
0.0%
d
d
Source: CRS calculations based on data from: Cynthia Belmonte, “Tax-Exempt Bonds, 2005,” SOI Bulletin, Fall 2007, vol. 27, no. 2.
a. 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.

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 2008 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 inflation index used to increase the cap, then the
per capita amount is determinative.
Table 2. State Private Activity Bond Annual Volume Limits,
2001 to 2008

States Choose the Greater of the Per Capita Amount
Multiplied by Population or the Minimum
Year
State Annual Minimum
Per Capita Amount
Amount (in thousands)
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
2008
$85.00
$262,095
Percentage Change
36.00%
39.78%
2001 to 2008
Total for 2001 to 2006 period
$1,360,685
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.

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 $146.0 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
(in millions)
(in 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)(14)
$2,000
$231
Highway and Surface
Transferd
2005
142(a)(15)
$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).
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.
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
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.

CRS-9
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 2005 and also reports
the 2006 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 six-year total (2001 to 2006) 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.
The territories (American Samoa, Guam, the Northern Mariana Islands, and the
U.S. Virgin Islands) and Puerto Rico also issue bonds for qualified private activities.
For the territories with population less than the least populous states, the cap is the
population of the territory divided by the population of the least populous state
(Wyoming) multiplied by the minimum amount ($262.095 million in 2008).10
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.11 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 2007 was $22.6
billion for all states and territories. Because the carryforward amount includes
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 2007,
52.5% of the total cap available. The average carryforward was 15.5%.
9 IRS data are from Cynthia Belmonte, “Tax-Exempt Bonds, 2005,” SOI Bulletin, Fall
2007, vol. 27, no. 2.
10 26 U.S.C. § 146(d)(4).
11 26 U.S.C. § 146(f)(3).

CRS-10
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)
2005 IRS Data
Bond Buyer Data
State
Total
Subject to
2005
2006
Volume
Cap
Cap Volume
Cap Volume
US Total
$54,691.0
$20,525.8
$26,079.1
$26,437.5
Alabama
$244.0
$20.8
$362.4
$364.6
Alaska
$229.0
d
$239.2
$246.6
Arizona
$1,562.0
$458.8
$459.5
$475.1
Arkansas
$292.0
d
$239.2
$246.6
California
$4,804.0
$2,001.0
$2,871.5
$2,890.6
Colorado
$1,319.0
$357.4
$368.1
$373.2
Connecticut
$776.0
$262.3
$280.3
$280.8
Delaware
$189.0
$96.5
$239.2
$246.6
D.C.
$1,000.0
$162.8
$239.2
$246.1
Florida
$2,004.0
$443.6
$1,391.8
$1,423.2
Georgia
$1,757.0
$268.7
$706.4
$725.8
Hawaii
d
d
$239.2
$246.6
Idaho
$259.0
$162.0
$239.2
$246.6
Illinois
$1,960.0
$595.8
$1,012.3
$1,021.1
Indiana
$1,668.0
$377.6
$499.0
$501.8
Iowa
$510.0
$238.1
$239.2
$246.6
Kansas
$185.0
$149.6
$239.2
$246.6
Kentucky
$538.0
$338.7
$331.7
$333.9
Louisiana
$596.0
$355.4
$361.3
$361.9
Maine
$300.0
$216.2
$239.2
$246.6
Maryland
$914.0
$270.8
$444.6
$448.0
Massachusetts
$1,782.0
$393.4
$513.3
$511.9
Michigan
$2,320.0
$728.5
$809.0
$809.7
Minnesota
$1,258.0
$408.4
$408.1
$410.6
Mississippi
$217.0
$188.0
$239.2
$246.6
Missouri
$1,320.0
$594.5
$460.4
$464.0
Montana
$86.0
d
$239.2
$246.6
Nebraska
$248.0
$95.4
$239.2
$246.6
Nevada
$359.0
$174.5
$239.2
$246.6
New Hampshire
$357.0
$295.8
$239.2
$246.6
New Jersey
$1,274.0
$469.9
$695.9
$697.4
New Mexico
$246.0
$218.2
$239.2
$246.6
New York
$6,823.0
$1,859.6
$1,538.2
$1,540.4
North Carolina
$1,611.0
$899.3
$683.3
$694.7
North Dakota
$244.0
$175.9
$239.2
$246.6
Ohio
$1,518.0
$636.6
$916.7
$917.1
Oklahoma
$404.0
$189.6
$281.9
$283.8
Oregon
$333.0
$83.1
$287.6
$291.3
Pennsylvania
$2,937.0
$651.0
$992.5
$994.4
Rhode Island
$314.0
$97.2
$239.2
$246.6
South Carolina
$417.0
$330.0
$335.8
$340.4
South Dakota
$456.0
$441.1
$239.2
$246.6
Tennessee
$911.0
$554.2
$472.1
$477.0
Texas
$2,821.0
$1,295.1
$1,799.2
$1,828.8
Utah
$543.0
$265.5
$239.2
$246.6
Vermont
$214.0
$189.7
$239.2
$246.6
Virginia
$1,821.0
$975.2
$596.8
$605.4
Washington
$1,199.0
$323.3
$496.3
$503.0

CRS-11
2005 IRS Data
Bond Buyer Data
State
Total
Subject to
2005
2006
Volume
Cap
Cap Volume
Cap Volume
West Virginia
$240.0
$122.2
$239.2
$246.6
Wisconsin
$888.0
$399.0
$440.7
$442.9
Wyoming
$378.0
$373.7
$239.2
$246.6
Source: IRS data are from Cynthia Belmonte, “Tax-Exempt Bonds, 2005,” SOI Bulletin, Fall 2007,
vol. 27, no. 2. The Bond Buyer data are from “State Allocations and Use of Private Activity Bonds
in 2006,” The Bond Buyer, June 25, 2007; and “State Allocations and Use of Private Activity Bonds
in 2005,” The Bond Buyer, May 1, 2006.
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 2006 time period, $3.8 billion was abandon capacity or just 2.6% of all
capacity. Delaware abandoned the most, $486.5 million, or approximately 12.7% of
the state’s available capacity (and about one-fifth of the U.S. total abandon capacity).
In contrast, 20 states did not abandon any capacity over the 2001 to 2006 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 2006, 20 states and the District of Columbia were subject to the
cumulative volume capacity minimum of $1,360.7 million over those six years (see
Table 2).12 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 5.8% of their capacity ($1.6 billion); the 30 more populous
states abandoned considerably less 1.9% of their capacity ($2.2 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.
12 The District of Columbia cap in 2006 reported in the Bond Buyer was $500,000 less than
reported by the U.S. Treasury.

CRS-12
Table 5. State Use of Private Activity Bond Volume Cap,
2001 to 2006
(in $ millions)
IDB
Carry-
Total
—
Exempt
Student
Abandon
State
forward
Capa
Housing
Small
Facility
Loan
Capacity
to 2007
Issue
US Total
146,000.0
73,577.0
7,563.0
15,492.0
21,321.0
22,638.0
3,818.0
Alabama
2,036.3
591.4
167.5
135.3
75.0
893.4
68.1
Alaska
1,360.7
645.6
0.0
148.1
279.4
358.0
90.6
Arizona
2,509.0
1,284.2
18.7
424.5
569.8
206.5
82.4
Arkansas
1,360.7
333.2
100.7
247.8
478.5
188.1
176.0
California
15,939.1
10,882.4
248.0
1,416.8
1,047.9
1,315.8
9.9
Colorado
2,043.5
1,679.9
62.3
154.8
493.3
0.0
0.0
Connecticut
1,569.0
1,421.6
23.9
43.3
107.3
36.1
41.1
Delaware
1,360.7
602.7
4.5
15.4
0.0
596.2
486.5
D.C.
1,360.2
486.1
15.0
0.0
0.0
518.8
330.9
Florida
7,658.6
3,332.4
354.2
742.2
984.2
2,377.6
459.5
Georgia
3,909.4
1,982.8
257.1
239.6
0.0
1,130.1
363.0
Hawaii
1,360.7
142.6
0.0
180.0
125.0
575.3
138.4
Idaho
1,360.7
656.8
37.6
58.1
20.0
362.5
0.0
Illinois
5,662.2
2,191.2
504.6
171.1
89.0
n.a.
0.0
Indiana
2,797.0
1,460.0
517.1
641.4
231.7
0.0
0.0
Iowa
1,362.4
749.8
79.5
90.4
268.9
70.4
0.0
Kansas
1,360.7
1,171.3
119.4
38.0
0.0
0.0
0.0
Kentucky
1,859.5
1,054.4
79.5
388.5
530.6
1.0
0.0
Louisiana
2,033.3
669.2
236.5
199.7
472.1
161.8
55.8
Maine
1,360.7
600.6
141.3
0.0
225.0
461.8
3.2
Maryland
2,476.8
1,617.1
83.9
40.6
0.0
698.8
236.3
Massachusetts
2,897.6
1,494.2
228.1
446.1
873.6
4.0
0.0
Michigan
4,549.4
856.9
307.7
591.1
1,575.1
930.1
16.0
Minnesota
2,280.4
1,781.9
72.6
86.0
197.4
161.4
0.0
Mississippi
1,360.7
503.4
62.0
79.7
326.6
380.1
3.8
Missouri
2,578.1
1,476.6
130.2
205.0
562.9
149.2
21.8
Montana
1,360.7
733.8
3.0
178.0
628.2
208.1
0.0
Nebraska
1,360.7
793.3
107.2
0.0
0.0
500.0
0.0
Nevada
1,360.7
436.9
82.5
119.0
0.0
475.0
32.3
New Hampshire
1,360.7
662.0
38.4
243.0
515.0
86.2
0.0
New Jersey
3,890.9
935.7
272.1
570.8
1,071.0
747.0
433.4
New Mexico
1,360.7
791.3
23.0
109.7
512.6
65.2
0.0
New York
8,662.5
6,896.0
217.5
111.5
0.0
763.3
0.0
North Carolina
3,791.6
729.8
187.2
544.5
1,407.6
593.5
98.3
North Dakota
1,360.7
694.6
5.1
15.0
1.0
714.7
83.4
Ohio
5,167.9
2,439.7
426.6
524.8
598.4
1,198.5
10.4
Oklahoma
1,583.8
909.1
57.7
218.0
453.7
66.2
22.6
Oregon
1,602.1
806.0
56.3
104.5
0.0
627.3
0.3
Pennsylvania
5,590.3
1,779.4
739.5
1,403.7
970.0
638.4
0.0
Rhode Island
1,360.7
483.0
24.4
100.1
370.1
236.3
0.0
South Carolina
1,850.7
567.2
139.9
355.4
674.7
175.8
66.0
South Dakota
1,360.7
780.0
18.8
0.0
0.0
616.9
214.8
Tennessee
2,637.3
941.1
125.4
262.4
972.3
0.0
0.0
Texas
9,933.6
5,004.7
204.9
2,383.0
1,635.8
707.9
134.7
Utah
1,360.7
632.9
58.5
85.4
506.8
139.6
0.0
Vermont
1,360.7
488.3
17.3
209.2
852.2
27.8
9.0
Virginia
3,321.6
2,235.0
135.1
156.7
0.0
704.3
28.9

CRS-13
IDB
Carry-
Total
—
Exempt
Student
Abandon
State
forward
Capa
Housing
Small
Facility
Loan
Capacity
to 2007
Issue
Washington
2,762.5
1,579.2
130.1
422.7
428.7
284.2
0.0
West Virginia
1,360.7
509.8
192.8
268.2
0.0
462.5
75.7
Wisconsin
2,469.8
1,311.1
254.3
93.0
0.0
806.6
25.2
Wyoming
1,360.7
768.4
193.0
230.2
190.0
215.7
0.0
Source: Author calculations based on Bond Buyer data.
a. 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 2006
IDB —
Carry-
Exempt
Student
Abandon
State
Housing
Small
forward
Facility
Loan
Capacity
Issue
to 2007
US Total
50.4%
5.2%
10.6%
14.6%
15.5%
2.6%
Alabama
29.0%
8.2%
6.6%
3.7%
43.9%
3.3%
Alaska
47.4%
0.0%
10.9%
20.5%
26.3%
6.7%
Arizona
51.2%
0.7%
16.9%
22.7%
8.2%
3.3%
Arkansas
24.5%
7.4%
18.2%
35.2%
13.8%
12.9%
California
68.3%
1.6%
8.9%
6.6%
8.3%
0.1%
Colorado
82.2%
3.0%
7.6%
24.1%
0.0%
0.0%
Connecticut
90.6%
1.5%
2.8%
6.8%
2.3%
2.6%
Delaware
44.3%
0.3%
1.1%
0.0%
43.8%
35.8%
D.C.
35.7%
1.1%
0.0%
0.0%
38.1%
24.3%
Florida
43.5%
4.6%
9.7%
12.9%
31.0%
6.0%
Georgia
50.7%
6.6%
6.1%
0.0%
28.9%
9.3%
Hawaii
10.5%
0.0%
13.2%
9.2%
42.3%
10.2%
Idaho
48.3%
2.8%
4.3%
1.5%
26.6%
0.0%
Illinois
38.7%
8.9%
3.0%
1.6%
na
0.0%
Indiana
52.2%
18.5%
22.9%
8.3%
0.0%
0.0%
Iowa
55.0%
5.8%
6.6%
19.7%
5.2%
0.0%
Kansas
86.1%
8.8%
2.8%
0.0%
0.0%
0.0%
Kentucky
56.7%
4.3%
20.9%
28.5%
0.1%
0.0%
Louisiana
32.9%
11.6%
9.8%
23.2%
8.0%
2.7%
Maine
44.1%
10.4%
0.0%
16.5%
33.9%
0.2%
Maryland
65.3%
3.4%
1.6%
0.0%
28.2%
9.5%
Massachusetts
51.6%
7.9%
15.4%
30.1%
0.1%
0.0%
Michigan
18.8%
6.8%
13.0%
34.6%
20.4%
0.4%
Minnesota
78.1%
3.2%
3.8%
8.7%
7.1%
0.0%
Mississippi
37.0%
4.6%
5.9%
24.0%
27.9%
0.3%
Missouri
57.3%
5.1%
8.0%
21.8%
5.8%
0.8%
Montana
53.9%
0.2%
13.1%
46.2%
15.3%
0.0%
Nebraska
58.3%
7.9%
0.0%
0.0%
36.7%
0.0%
Nevada
32.1%
6.1%
8.7%
0.0%
34.9%
2.4%
New Hampshire
48.7%
2.8%
17.9%
37.8%
6.3%
0.0%
New Jersey
24.0%
7.0%
14.7%
27.5%
19.2%
11.1%
New Mexico
58.2%
1.7%
8.1%
37.7%
4.8%
0.0%
New York
79.6%
2.5%
1.3%
0.0%
8.8%
0.0%

CRS-14
IDB —
Carry-
Exempt
Student
Abandon
State
Housing
Small
forward
Facility
Loan
Capacity
Issue
to 2007
North Carolina
19.2%
4.9%
14.4%
37.1%
15.7%
2.6%
North Dakota
51.0%
0.4%
1.1%
0.1%
52.5%
6.1%
Ohio
47.2%
8.3%
10.2%
11.6%
23.2%
0.2%
Oklahoma
57.4%
3.6%
13.8%
28.6%
4.2%
1.4%
Oregon
50.3%
3.5%
6.5%
0.0%
39.2%
0.0%
Pennsylvania
31.8%
13.2%
25.1%
17.4%
11.4%
0.0%
Rhode Island
35.5%
1.8%
7.4%
27.2%
17.4%
0.0%
South Carolina
30.6%
7.6%
19.2%
36.5%
9.5%
3.6%
South Dakota
57.3%
1.4%
0.0%
0.0%
45.3%
15.8%
Tennessee
35.7%
4.8%
9.9%
36.9%
0.0%
0.0%
Texas
50.4%
2.1%
24.0%
16.5%
7.1%
1.4%
Utah
46.5%
4.3%
6.3%
37.2%
10.3%
0.0%
Vermont
35.9%
1.3%
15.4%
62.6%
2.0%
0.7%
Virginia
67.3%
4.1%
4.7%
0.0%
21.2%
0.9%
Washington
57.2%
4.7%
15.3%
15.5%
10.3%
0.0%
West Virginia
37.5%
14.2%
19.7%
0.0%
34.0%
5.6%
Wisconsin
53.1%
10.3%
3.8%
0.0%
32.7%
1.0%
Wyoming
56.5%
14.2%
16.9%
14.0%
15.9%
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%.
Selected 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, economic
development, infrastructure investment, renewable energy, recycling, conservation
initiatives, and tribal government parity.
Housing Related Proposals
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. H.R. 4312 and the related S. 2757 would
further expand the Gulf Opportunity Bond provisions.

CRS-15
Two House bills, H.R. 3742 and the Military Assistance Act of 2007, H.R. 3816,
would eliminate the first-time homebuyer requirement for mortgage revenue bonds
issued to finance mortgages for qualified veterans. More generally, H.R. 5720,
which was approved by the House Ways and Means Committee on April 9, 2008,
would allocate an additional $10 billion for mortgage revenue bonds and residential
rental facilities. In addition, a Senate-amended version of H.R. 3221 would also
allocate an additional $10 billion.
H.R. 5239 and S. 2517 would allow the issuance of $15 billion in additional
mortgage revenue bonds for the purchase of subprime mortgage loans. A related bill,
S. 2574, the Mortgage Refinancing Initiative Act of 2008, would permit the Secretary
of Treasury to allocate an additional $5 million each for 2008 and 2009. (Note that
the amount may have been intended to be $5 billion for each year.)
Economic Development Proposals
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. The tax-exempt bonds created by S. 672 would not be subject to
a volume cap. H.R. 3089 would create a new category of private activity bonds for
construction of domestic use oil refineries.
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 Trade and
Globalization Assistance Act of 2007, H.R. 3920, would increase the amount of tax-
exempt bond proceeds a project can use in a newly designated “manufacturing zone.”
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.
Infrastructure Investment Proposals
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.

CRS-16
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 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
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.
Environmental and Conservation Proposals
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 Clean
Renewable Energy and Economic Development Incentives Act of 2007 (S. 1531)
would expand the list of private activities to include facilities that use renewable
resources for energy production. 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 Community Forestry Conservation Act of 2007 (S. 1952 and H.R. 3456)
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.
S. 1987 would provide an additional $12 billion in private activity bond volume
cap for the construction of an alternative motor vehicle facility. The bonds must be
issued before January 1, 2013 and a single issuer can use a maximum of $4 billion
of capacity.
Other Proposals
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.