Does tax reform threaten the KCI terminal project? No. Pay attention anyway

There is no need to freak out over news that Congress may change the tax treatment of airport terminal borrowing.

There is a need to pay attention.

Last week, the House passed a bill eliminating the tax exemption on interest from so-called private activity bonds, or PABs.

Under current law, PAB buyers don’t pay taxes on the interest they earn. As a result, the bonds have lower interest rates, which is good news for those issuing the bonds.

Tax-exempt municipal bonds have been available for decades. That’s how cities and states borrow for streets, sidewalks, and public buildings.

Since 1968, though, federal law has also allowed the issuance of tax-free bonds for more semi-private purposes, like airports. Hospitals, museums, and affordable housing projects are also on the list.

Some Republicans say PABs are essentially a public subsidy for private businesses, and they repealed the PAB exemption in their tax reform bill.

Which got everyone’s attention around here. Kansas Citians recently voted to borrow $1 billion or so for a new terminal at Kansas City International Airport, and PABs are likely involved.

The people cobbling the financing together are watching Washington, nervously, worried those bonds will be taxable, and therefore more expensive.

There’s no need for overreaction, however.

▪ PAB repeal may not happen. While the House has taken the tax exemption away, the Senate has not.

We think the Senate position should prevail. The best way to solve this issue is for Congress to drop the idea.

PABs were invented so it would be cheaper to build airports, docks, transportation projects, and the like. Those projects are considered public goods, even though private companies benefit.

KCI clearly serves the public interest. No one seriously argues it has only a private purpose.

If the Senate wobbles, local GOP representatives — we’re looking at you, Reps. Sam Graves and Kevin Yoder — should work to protect the airport tax exemption in the final bill.

▪ Even if the PAB exemption ends, though, the cost to travelers should be small. By some estimates, issuing taxable debt for the new terminal will cost an additional $12 million a year. That’s about $1.10 more per arriving and departing passenger.

▪ Kansas City taxpayers are not on the hook for airport financing, regardless of how the PAB issue plays out. And since most traditional airport revenue bonds are considered PABs, another local election to authorize their use wouldn’t save any money.

The airlines, Edgemoor Infrastructure & Real Estate and the city will have to work the problem out. Authorities always anticipated at least some taxable private financing for the airport project; if the bill passes, they’ll have to make new calculations.

We urge Kansas City area travelers to keep this in mind: The new terminal will be built. Ticket prices will go up, although no one knows exactly how much. There won’t be another vote.

We also urge Congress to focus on cutting taxes for the middle class, not making infrastructure improvements more difficult.

This story was originally published November 20, 2017 at 4:46 PM with the headline "Does tax reform threaten the KCI terminal project? No. Pay attention anyway."