Download Alternative Minimum Tax Relief For Private Activity Bonds Must Be

Alternative Minimum Tax Relief For Private Activity Bonds Must Be
Long-Term and Allow Refunding of Existing Debt
Airports throughout the United States are pleased that many in Congress have recognized
that relief from the Alternative Minimum Tax (AMT) penalty for private activity bonds
(PABs) is necessary for creating jobs and generating economic activity at airports and
other sectors of the U.S. economy. Many prominent economists have stated that the key
to recovery from a major economic downturn like that faced by Japan and Asia in the
1990’s and like that we are facing today, is access to the credit markets.
Airports Council International-North America, the American Association of
Airport Executives and airports around the country urge Congress to include
provisions in the economic recovery package that would eliminate the AMT penalty
on airport PABs, permit current refunding of existing debt, and make those changes
permanent to help airports finance critical infrastructure in the long-term. These
provisions would help airports move forward with projects that improve safety,
security and capacity while stimulating the economy by creating much-needed jobs.
Eliminate the AMT Penalty on Airport Private Activity Bonds: For airports the cost of
auction and variable rate debt has spiked to unprecedented levels and most bond
insurance firms have been downgraded to levels where their policies are virtually
worthless. The flight of investors from these securities forced airports to seek to
refinance their variable rate debt into fixed, long-term debt. However, on top of the larger
troubles in the credit markets, the market for airport bonds is made even more difficult by
the fact that since 1986, the majority of bonds issued by airports are classified as private
activity bonds, interest payments on which are subject to the AMT.
The situation has now degraded to a point where airports are unable to sell revenue bonds
which are subject to the AMT even though the underlying credit ratings of airports have
remained at high investment grade levels of A and AA. Unimpeded access to credit is
critical for airports to fulfill their role in stimulating the economy in the short-term and
providing the capacity to support the long-term needs of the national air transportation
system. Today, it is almost impossible to finance new airport projects, and many existing
projects are now threatened due to lack of ongoing financing.
Provide Airports With a Permanent Fix: Legislation to provide relief from the AMT
penalty for PABs would provide great assistance to airports in financing infrastructure
and creating jobs. However, it is critical that this relief be permanent to facilitate the
financing of long-term airport projects.
Airport financing is complex with many projects taking years to complete. Terminal
projects usually take 3 to 5 years to construct and the planning, design and construction
of runways can take on average 8 to 15 years to complete. These projects cost hundreds
of millions of dollars and are financed through multiple bond issues over the construction
period. Therefore, any airport attempting to finance a large scale capital project with
bonds that have only a short-term exemption from the AMT will find its capital funding
program at substantial risk, as it is unlikely investors will buy bonds issued during later
phases of construction after the expiration of a temporary AMT exemption. This risk
will not only stall construction of projects that could have the largest simulative impact
across the nation for job creation and economic activity in the short-term, it will also
affect long-term airport construction and the continuation of thousands of jobs.
Allow Current Refunding: It is also critical to ensure that the legislation allow airports to
refinance debt that was issued using other funding mechanisms due to the problems with
PAB financing subject to AMT. Some airports still must issue long-term fixed rate bonds
to replace their failed auction and other variable rate securities. Several airports,
including Las Vegas and the Metropolitan Washington Airports Authority (MWAA),
needed access to financing for important capital projects during the past few months, but
were forced to use commercial paper as a short-term fix to allow their projects to move
forward as the credit market for long-term AMT debt disappeared. While this temporary
financing allowed new projects to begin, the ability of these and other airports to move
forward with the next phases of their projects in the next six months is in jeopardy if
airports are not able to refinance existing debt.
During these challenging times, airports understand they are the public face of aviation in
their communities and are working hard to retain air service for their constituents and
contribute to the community’s economic growth. Permanent AMT relief that allows
current refunding of existing debt will greatly assist in these efforts and stimulate the
economy by creating jobs.
Please contact Annie Russo (202-293-4544; [email protected]), Channon Hanna (202861-8087; [email protected]) or Brad Van Dam (703-824-0500 ext 169;
[email protected] )
January 19, 2009