Federal private activity bonds, used in Montana through public-private partnerships to finance a slew of health care facility projects and housing programs, would be eliminated under the version of the tax bill passed by the U.S. House.
The bonds help nonprofit hospitals, nursing homes and pre-release centers finance renovations and expansions, assist families buying homes and help developers build low-income housing. In addition, the bonds help hospitals purchase equipment.
The state Department of Commerce, as well as the Montana Hospital Association, developers, mortgage brokers, banks and others oppose the elimination.
“It’s really short-sighted they may be thinking about this,” said Pam Haxby-Cote, director of the state Department of Commerce.
The bonds provide tax-exempt financing through public-private partnerships where state entities, the Montana Facility Finance Association and Board of Housing, help banks access the capital from bonds to loan. Because banks don’t pay taxes on interest for these loans, borrowers pay a lower rate.
Eliminating the tax-exempt private activity bonds would create $38.9 million in revenue over the next 10 years, according to a report from the Joint Committee on Taxation.
Hospitals and other health care facilities
Only nonprofit hospitals and nursing homes, as well as pre-release centers and other facilities, are eligible for lending to build buildings and do major renovations.
Over the last two years, the Montana Facility Finance Authority structured more than $364 million in projects and financing across the state. Since 1983, the authority has done $2.87 billion in financing statewide on projects like building and renovating hospitals and nursing homes and purchasing major equipment like mammogram machines.
“This is not debt of the state of Montana,” said Adam Gill, executive director of the finance authority. “This is the hospital’s debt. It’s the same as if they’d gone to a bank and gotten the loan themselves. Through private activity bonds we’re able to bring investment into the state of Montana to build Montana communities and we’re able to do it without costing Montana taxpayers a dime."
Pointing to a map showing hospital and nursing home projects facilitated by the finance authority, Gill notes projects at “basically every wide spot in the road.”
The finance authority has done a large amount of work with Bozeman Health Deaconess Hospital, including the construction of a new hospital in Big Sky. In Deer Lodge at the Deer Lodge Medical Center, they have helped build a new hospital and purchase a 3D mammography machine.
There are about $270 million in projects expected to close in the next 12 months, which wouldn’t happen if the bond program is eliminated. Moreover, Gill said he's unsure what would happen to the $950 million in outstanding bonds with 30 facilities if the program is eliminated.
Haxby-Cote said the program helps preserve communities around the state and builds wealth in communities.
“If you don’t have health care in rural communities, there’s a sucking sound that happens in these rural towns,'' she said. "If you can’t have baby in a rural hospital, where are you going to live? You’re going to live someplace closer.''
Gill said building hospitals not only creates jobs in construction, but also brings in doctors and other high-paying positions, helping local economies.
While hospitals could still seek private financing, it comes at a higher cost, he said.
The Department of Commerce’s Board of Housing provided $82 million in private activity bond proceeds to 600 families buying homes last year. Over its 40-year history it has provided $3 billion to about 42,000 families.
The bonds also help the board issue financing through local banks to developers who build low-income housing for families that earn less than 60 percent of the median area income. Since 1996, it has financed 20 projects through loans and housing credits that created 1,504 units statewide.
Bruce Brensdal, executive director of the Board of Housing, said private activity bonds allow the board to do projects that keep Montana communities vital.
“For folks just starting out to have a decent, affordable place to live could be a real basis for them being successful in all the other areas of life,” Brensdal said. “If you’re talking about a senior household, for them to have the comfort of knowing they can actually live in a place and not have to be selling off things in order to pay their bills, that’s why I like to come to work.”
The regular bond program targets people who earn 80 to 120 percent of the area median income buy homes.
“Those are folks that are buying their first homes, just getting started in their professions and because of the tax-exempt nature we can offer a lower interest rate so they can have more buying power in their homes,” Brensdal said.
The Board of Housing also issues bonds to provide financing to develop low-income rental housing for households that make 60 percent of an area’s median income or less. That has produced 7,000 units of housing through private activity bonds and tax credits.
One of the projects financed through private activity bonds is Larkspur Commons in Bozeman, which rents one-bedroom units for $595-$730, two-bedrooms for $714-$867 and three-bedroom for $811-$998 for people — much lower than the average rent of $1,200.
The Board of Housing is working on a project in Great Falls called Rockcress Commons, but it hasn’t been built yet.
If Congress eliminates the bonds, "those projects aren’t going to happen anymore,” Brensdal said. The Board of Housing is rushing to get bonds issued by Dec. 31, he added.
Affordable housing helps communities bring and keep the kind of workers that keep communities running, Brensdal said.
“If you look at Big Sky and they’re busing people in, those are the folks that are teaching in the schools, that are policemen on the street, they’re working in your stores and restaurants,” Brensdal said. “All of the people that make a community is what it is. If they’re not able to actually live in that community, that doesn’t make for a strong community.”
Haxby-Cote said doing away with the programs would hurt the state.
“This would be a real shame to pass the tax bill on the backs of folks who really need the assistance and who are paying for the assistance,'' she said. "This is not free. These folks are paying their rent and they're paying their taxes and they’re paying their tax payments. This is not a giveaway program.”
Montana Rep. Greg Gianforte, a Republican, voted for the House tax bill. He said Monday the overall bill would benefit Montana families.
“With the tax cuts I voted for, hardworking Montanans will keep more of what they earn with lower tax rates and the doubling of the standard deduction. Montana’s families will be able to better afford raising their children with an increased child tax credit. Small businesses will see their taxes cut, leading them to grow and create more Montana jobs. These are the benefits that all Montanans will see," Gianforte said.
The Senate version of the bill, which Sen. Steve Daines, a Republican, voted to approve, would not eliminate the bonds. Sen. Jon Tester, a Democrat, voted against the bill.
A conference committee made up of House and Senate members are meeting to craft a compromise version of the two chambers' tax bills. Final votes on the legislation are expected by Christmas.