The American Association of Port Authorities (AAPA) has criticised aspects of new legislation being proposed by the US authorities.
In a statement, the AAPA said that infrastructure funding would be made more difficult by provisions in two separate ‘Tax Cuts and Jobs Act’ bills which have been approved by the House of Representatives and the Senate.
Both bills would repeal the tax exemption for advanced refunding of bonds, which the AAPA claims would affect the ability of issuers to refinance those bonds at lower rates.
Additionally, the bill passed by the House of Representatives would eliminate tax-exempt status for Private Activity Bonds (PABs),
According to the AAPA, approximately 27% of the US$451bn in long-term, tax-exempt U.S. municipal bonds were advance refunded in 2016 to take advantage of lower rates.
“While we applaud the intentions of Congress and the [Presidential] Administration to simplify our complicated and oftentimes burdensome tax structure and incentivise investments into our economy, a number of tax changes in both versions of the legislation run counter to those intentions,” said Kurt Nagle, AAPA president and CEO.
“AAPA supports maintaining the historic system of tax-exempt bonds and encourages these bonds to also be permanently exempt from the Alternative Minimum Tax,” he continued.
According to AAPA, its US member ports and their private sector partners are in a building boom, planning to invest $155bn into capital projects between 2016 and 2021. Many of these improvements will be financed through municipal and private activity bonds.
AAPA said that one of the many examples of the predicted impacts of the changes, the ports of Los Angeles and Long Beach – which comprise the largest port complex in the United States – have each estimated the loss of tax exemptions on PABs and advance refundings would increase the cost of financing their port infrastructure.
The Port of Los Angeles estimates its costs would increase US$30m over 30 years if it couldn’t use tax-exempt PABs, while the proposed changes to advanced refunding would cost US$28.17 million over the same time horizon.
The Port of Long Beach says it has US$823m of outstanding long-term debt, of which US$394m is in tax-exempt PABs and US$395m is eligible to be “advance refunded.” For every US$100m of borrowing that can’t be issued as PABs, the port estimates its debt service costs would increase by approximately US$19m.