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Transportation Funding & Financing

Private Activity Bonds


SAFETEA-LU amended Section 142 of the Internal Revenue Code to add highway and freight transfer facilities to the types of privately developed and operated projects for which private activity bonds (PAB) may be issued. This change allows private activity on these types of projects, including development, design, finance, construction, operation, and maintenance, while maintaining the tax-exempt status of the bonds. PABs are issued by a public, conduit issuer on behalf of a private entity. The private entity is the obligor on the PABs.

The law limits the total amount of such bonds to $15 billion and directs the Secretary of Transportation to allocate this amount among qualified facilities. The $15 billion in exempt facility bonds is not subject to state volume caps, the maximum amount of tax-exempt PABs that may be used in a state in a given year.

Passage of the private activity bond legislation reflects the Federal government's desire to increase private sector investment in U.S. transportation infrastructure. Providing private developers and operators with access to tax-exempt interest rates lowers the cost of capital significantly, enhancing investment prospects. Increasing the involvement of private investors in highway and freight projects generates new sources of money, ideas, and efficiency. A technical paper prepared for the National Surface Transportation Policy and Revenue Study Commission estimates, in present value terms, the federal tax-exemption subsidy for PABs to be approximately 15-20 percent of the amount borrowed.

Additional information on PABs is available on FHWA's PPP website, including:

Current Status
Qualified Projects
Expending Bond Proceeds
Private Activity Bonds and TIFIA
Applications for Allocations
Review of Applications


The Federal Register Notice
Invites comments on and applications for Authority for Tax-Exempt Financing of Highway Projects and Rail-Truck Transfer Facilities.

The Federal Register Docket
Provides background documents and comments received on the Federal Register Notice. It is updated as new documentation and comments are received.

Internal Revenue Bulletin
Provides guidance relating to exempt facility bonds for qualified highway or surface freight transfer facilities under sections 142(a)(15) and 142(m) of the Internal Revenue Code.

National Surface Transportation Policy and Revenue Study Commission Briefing Paper 5A-14
Discusses tax-preferred investment products to stimulate investment in surface transportation including PABs.