At a December 7th board meeting of the Chester County Economic Development Council (CCEDC), its members shared their questions and concerns regarding the proposed federal tax reform legislation to eliminate or restrict private activity bonds and advance bond refundings.
Of concern is the elimination of either of these structures from the Internal Revenue Code, which could have a significant adverse impact on our first-time farmers and manufacturers as well as many important 501c3 charitable organizations who provide critical services to the citizens of Chester County.
Private activity bonds, including qualified 501(c)(3) bonds, are issued to finance projects that support manufacturing facilities and charitable organizations such as hospitals, foundations and colleges and universities.
These bonds are a critical tool for financing public needs, including infrastructure projects and other community priorities, such as senior and student housing.
The current tax law provides a financial incentive for investors (an exemption from income tax on interest earned on the bonds), manufacturers, and charities to work with the government and public officials to more efficiently and economically respond to the needs of the community.
Advance refundings of bonds allow borrowers to refinance outstanding tax-exempt debt at current market rates to reduce overall borrowing costs. If private activity bonds and advance refundings are eliminated, projects would need to be financed, if at all, on a taxable basis.
Higher borrowing costs could threaten projects that benefit our community because they simply may not be financeable.
In addition, private activity bonds and advance refundings support infrastructure projects that are structured as public/private partnerships. “These bond programs have been an invaluable tool for Chester County businesses and non-profits for over 40 years,” said Gary Smith, President and CEO of the CCEDC.
Click here to learn more about how Private Activity Bonds fare in the pending tax overhaul currently being considered by Congress.
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