Washington, D.C. — U.S. Senators Michael Bennet (D-Colo.) and Roger Wicker (R-Miss.) introduced the American Infrastructure Bonds Act. This bipartisan legislation will help state and local governments finance critical infrastructure projects by establishing a new class of taxable, direct-pay municipal bonds.
Despite receiving much-needed funding through the 2021 Bipartisan Infrastructure Law, many rural communities continue to face high interest rates that delay crucial projects. To address this challenge, the American Infrastructure Bonds Act will allow state and local governments to issue taxable bonds for any public expenditure that would be eligible to be financed by tax-exempt bonds. These bonds could be used to support critical infrastructure projects including roads, bridges, water systems, and broadband internet.
“To build an economy that works for every Coloradan, we have to invest in 21st-century American infrastructure,” said Senator Bennet. “American Infrastructure Bonds are a proven, successful model to expand investments to help state and local leaders build stronger and more resilient communities.”
“Local governments need flexibility to invest in the infrastructure their constituency needs, not be stifled by bureaucratic red tape. The American Infrastructure Bonds Act would establish a bond program to expand investment in infrastructure improvements nationwide. This legislation would help rural communities access affordable financing for the necessary infrastructure in their cities and towns,” said Senator Wicker.
The senators’ proposed American Infrastructure Bonds (AIBs) would improve upon the model of Build America Bonds (BABs) that were issued after the 2008 financial crisis to attract greater investment in public infrastructure. The U.S. Treasury would pay a percentage of a bond’s interest to the issuing entity to reduce costs for state and local governments. Payments would be issued for projects at 28% of the bond’s interest.
This legislation is expected to boost investment in infrastructure and other important public projects by providing affordable access to the large taxable bond market. The higher interest rates offered by taxable AIBs increase the expected value of the bonds to some types of investors, such as pension funds, insurance companies, and foreign investors, who do not receive the tax advantage from traditional tax-exempt bonds. Expanding the market for municipal bonds increases private investment in the public sector and equips state and local governments with more options for financing projects. AIBs would also incentivize private capital to invest in rural areas, where financing is often harder to secure.
This legislation will also provide increased flexibility to state and local governments. With AIBs, local communities can develop their infrastructure strategically without the burden of a centralized bureaucracy or the constraint of a state cap on allocation. The payments from the U.S. Treasury to issuers would also be exempt from sequestration, which would increase the confidence in the bonds by the bondholder and bond issuer alike.
Bennet and Wicker previously introduced the American Infrastructure Bonds Act in April 2021. The senators first introduced this legislation in July 2020.
The text of the bill is available HERE.