High-speed rail's use of tax-exempt bonds questioned
- Florida Republican Senator Marco Rubio has asked the U.S. Department of Transportation to clarify the rules around the use of private-activity bonds (PABs) and has questioned whether the Brightline express train service is eligible to sell up to $1.75 million of the tax-exempt bonds to finance the construction of its second leg from West Palm Beach to Orlando, the Palm Beach Post reported.
- The USDOT determined that the Brightline meets the definition of a surface transportation project, making it eligible to use PABs for financing. The agency authorized the rail company, which sold $600 million in PABs to help finance its inaugural route, to sell $1.15 billion of the bonds to help pay for construction of the new leg. The project also could have qualified under a $15 billion set-aside for high-speed rail projects that travel at speeds of up to 150 mph. The Brightline's maximum speed is 125 mph.
- Critics of the rail's use of PABs say it is tantamount to a taxpayer subsidy, but Brightline officials said the public will not have to absorb any potential losses the rail might suffer in the future. Brightline officials said the company is also pursuing a federal Railroad Rehabilitation & Improvement Financing loan that could help pay for the West Palm Beach-to-Orlando piece of the project.
One of the questions Rubio asked the USDOT is whether other rail projects have qualified for the bonds, and the answer is yes. Maryland's beleaguered $5.6 billion Purple Line, for example, has benefited from more than $300,000 in PAB issues. In fact, when early versions of last year's tax reform bill threatened to limit the use of PABs, Maryland Gov. Larry Hogan announced that he would accelerate the timeline for the bond sale before any such potential laws took effect. The PAB element represents the state's share of financing for the project.
PABs make it possible for private companies to get involved in infrastructure and other public works by lowering the borrowing costs that can make the projects so expensive. In an early budget request, President Donald Trump's team recognized this and advocated for lifting the PAB cap entirely to promote the use of public-private partnerships. The House, in justifying the defunct version of the bill that would have eliminated private-sector use of PABs, House Republicans said doing away with the tax-exempt bond option would deliver to taxpayers an extra $40 billion in tax revenue.
- Palm Beach Post NEW: Rubio questions Brightline’s use of tax-exempt bonds
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