The Florida Senate
BILL ANALYSIS AND FISCAL IMPACT STATEMENT
(This document is based on the provisions contained in the legislation as of the latest date listed below.)
Prepared By: The Professional Staff of the Committee on Appropriations
BILL: CS/SB 7054
INTRODUCER: Appropriations Committee and Community Affairs Committee
SUBJECT: Private Activity Bonds
DATE: February 26, 2024 REVISED:
ANALYST STAFF DIRECTOR REFERENCE ACTION
Hackett Ryon CA Submitted as Comm. Bill/Fav
1. Shettle Sadberry AP Fav/CS
Please see Section IX. for Additional Information:
COMMITTEE SUBSTITUTE - Substantial Changes
I. Summary:
CS/SB 7054 substantially revises Part VI, Private Activity Bonds, of ch. 159, F.S. The bill
modernizes, updates, and streamlines out-of-date provisions throughout the part, and codifies
certain Division of Bond Finance (Division) rules related to the administration of private activity
bonds. Specifically, the bill:
 Provides legislative intent to maximize the annual use of private activity bonds to finance
improvements, projects, and programs serving public purposes and benefitting the social and
economic well-being of Floridians;
 Refines and adds definitions used throughout;
 Revises the regions, pools, and timelines related to bond allocations to consolidate
infrequently used pools and expedite usage of bonds;
 Codifies current rules and procedures related to requests for volume limitation by notice of
intent to issue, evaluating such notices, and the division’s role in final certification of bond
issuance;
 Allows for all volume cap allocated in a confirmation to be entitled to be carried forward,
rather than limiting to specific types of projects or basing it on the amount of the
confirmation;
 Replaces the existing processes for requesting and granting allocation of volume cap with an
electronic application wherein all Notices and Issuance Reports will be submitted on the
Division’s website in lieu of via certified/overnight mail;
 Repeals the Division’s rulemaking authority; and
 Amends related statutes to correct cross references and outdated references.
BILL: CS/SB 7054 Page 2
The bill has an indeterminate, likely insignificant fiscal impact to state revenues and
expenditures. See Section V., Fiscal Impact Statement.
The bill takes effect January 1, 2025.
II. Present Situation:
Private Activity Bonds
State and local governments receive direct and indirect tax benefits under the Internal Revenue
Code (the “Code”) and associated federal tax regulations that typically result in lower borrowing
costs for capital projects through the issuance of tax-exempt bonds.1 The tax exemption lowers
the cost of capital because the interest earnings on taxable bonds carry a tax liability, allowing
investors to receive the same rate of return while charging a lower interest rate.2
Tax-Exempt Status of Governmental & Private Activity Bonds
Bonds issued by state and local governments, and conduit issuers on their behalf,3 are classified
as either governmental bonds,4 or private activity bonds (“PABs”).5 Governmental bonds are
those bonds which are issued to finance programs and projects that are owned, operated, or used
by, governmental entities, including construction, maintenance, and repair of public
infrastructure;6 and which have only a de minimis benefit to private businesses.7 All other bonds
issued by state and local governments are considered PABs.8 PABs can be issued by designated
state agencies and units of local government, including conduit issuers, to finance projects that
are owned, operated, or used by, nongovernmental, private businesses, that provide a public
benefit.
1
United States Department of the Treasury, Internal Revenue Service “Publication 4078, Tax-Exempt PABs” (Rev. 9-2019)
Catalog Number 34662G, available at https://www.irs.gov/pub/irs-pdf/p4078.pdf (last visited Feb. 2, 2024).
2
For example, if the interest earnings on taxable bonds carry a tax liability of 35% of the interest earnings, the after-tax rate
of return on taxable bonds that yield a 10% rate of return before taxes is equivalent to tax-exempt bonds that yield a 6.5% rate
of return; the investor receives the same return in both instances but, by issuing tax-exempt bonds capital can be raised at an
interest cost that is 3.5 percentage points lower. The greater the yield spread between taxable and tax-exempt bonds, the
greater the nominal savings. See Congressional Research Service, “Tax-Exempt Bonds: A Description of State and Local
Government Debt,” updated February 15, 2018, available at: https://crsreports.congress.gov/product/pdf/RL/RL30638 (last
visited Feb. 2, 2024).
3
Conduit issuers include governmental and quasi-governmental agencies and corporations, such as special districts, industrial
development authorities, local housing finance authorities, and other agencies statutorily authorized to issue PABs (e.g., the
Florida Housing Finance Corporation and the Florida Development Finance Corporation).
4
Treas. Reg. § 1.141-1(b).
5
I.R.C. § 141(a).
6
United States Department of the Treasury, Internal Revenue Service “Publication 4079, Tax-Exempt Governmental Bonds”
(Rev. 9-2019) Catalog Number 34663R, available at https://www.irs.gov/pub/irs-pdf/p4079.pdf (last visited Feb. 2, 2024).
7
If more than 10% of the proceeds will be used by a private business (the “private business use test”) and more than 10% of
the proceeds will be secured by property used by a private business (the “the private security or payment test”), then the
bonds will satisfy both prongs of the private business tests will be considered PABs and not governmental bonds.
Additionally, if more than the lesser of 5% of the proceeds or $5 million will be used to make or finance loans to persons or
entities other than governmental units, then the bonds will satisfy the private loan financing test and will be considered PABs
and not governmental bonds. See I.R.C. § 141(b)-(c).
8
I.R.C. § 141(a).
BILL: CS/SB 7054 Page 3
Generally, interest on governmental bonds excluded from gross income for federal income tax
purposes9 and the interest on PABs is taxable; 10 however, Congress has authorized the issuance
of tax-exempt PABs as a mechanism to subsidize the development of capital projects by private
businesses that provide a public purpose by affording such projects the same tax benefits as
governmental bonds.11 Such projects include affordable housing projects, public works projects
(e.g., utility, water, sewage, solid waste facilities), and projects that will be used by 501(c)(3)
non-profit organizations.12 These types of projects are deemed to provide sufficient public
benefits to merit excluding the interest on the PABs issued to finance such projects from gross
income for federal income tax purposes.13 As such, governments can incentivize the private
sector to invest in infrastructure and develop programs and projects that benefit their citizens by
providing those private businesses with a more affordable (lower interest rate) source of funds
through the issuance of tax-exempt PABs.14
The Division of Bond Finance
The Division of Bond Finance of the State Board of Administration of Florida (the “Division”)
was created to provide capital financing for state agencies and associated entities by issuing and
administering a variety of bonds authorized by s. 11, art. VII of the state constitution for
education, environmental, transportation, state facilities, and insurance programs.15 The Division
is administratively housed within the State Board of Administration, and is governed by the
Governor and Cabinet.
Included in their duties is the administration of PABs, which includes calculating the volume
cap, allocating those bonds from the federal grant of authority to end users across the state, and
reporting their ultimate usage to the Internal Revenue Service to maintain tax exempt status.16
The Division receives and executes applications for use of PABs from local governments, end
users, and conduit issuers such as the Florida Housing Finance Corporation and the Florida
Development Finance Corporation.
Types of Tax-Exempt PABs
Since PABs were defined in 1968, Congress has more than doubled the purposes for which
PABs can qualify for the tax exemption.17 A “qualified bond” (i.e., one that may be issued as
9
I.R.C. § 103(a).
10
I.R.C. § 103(b)(1).
11
Congressional Research Service, “PABs: An Introduction,” updated January 31, 2022, available at:
https://crsreports.congress.gov/product/pdf/RL/RL31457 (last visited Feb. 2, 2024).
12
I.R.C. §§ 142-145.
13
Tax-exempt status only applies to PABs that are “qualified bonds” as defined in I.R.C. § 141. See I.R.C. § 103(b).
14
Supra, note 7.
15
The Division currently reports ratings for more than 30 different bonds. See State of Florida Division of Bond Finance,
Summary of Bond Program Ratings, available at https://www.flabonds.com/state-of-florida-investor-relations-fl/additional-
info/i678?i=3 (last visited Feb. 5, 2024).
16
See Generally, “Florida Private Activity Bond Allocation Act,” Part VI, Ch. 159, F.S.; Office of Program Policy Analysis
and Government Accountability, State Board of Administration of Florida, Bond Finance, available at
https://oppaga.fl.gov/ProgramSummary/ProgramDetail?programNumber=4041 (last visited Feb. 5, 2024).
17
Supra, note 12.
BILL: CS/SB 7054 Page 4
tax-exempt) is any one of the following types of PABs18 that also meets the applicable
requirements of Sections 146 and 147 of the Code:
 Exempt facility bonds19 that are issued to finance airports, docks and wharves, mass
commuting facilities, facilities for the furnishing of water, sewage facilities, solid waste
disposal facilities, qualified residential rental projects, facilities for the local furnishing of
electric energy or gas, local district heating or cooling facilities, qualified hazardous waste
facilities, high-speed intercity rail facilities, environmental enhancements of hydro-electric
generating facilities, qualified public educational facilities, qualified green building and
sustainable design projects, qualified highway or surface freight transfer facilities, qualified
broadband projects, and qualified carbon dioxide capture facilities.
 Qualified mortgage bonds.20
 Qualified veterans’ mortgage bonds.21
 Qualified small issue bonds.22
 Qualified student loan bonds.23
 Qualified redevelopment bonds.24
 Qualified 501(c)(3) bonds.25
PAB Volume Cap and State Ceiling
The federal government imposes an annual limit (“volume cap” or “volume limitation”) on the
aggregate amount of certain types of tax-exempt PABs), that may be issued in each state and
U.S. territory (the “state ceiling”).26 The state ceiling is based on the state’s population and may
be adjusted for inflation.27 The inflation adjustments are published in a revenue procedure issued
prior to the beginning of each calendar year.28 The formula for calculating the state ceiling for
2024 is the greater of $125 multiplied by the state population or $378.23 million.29 The Division
has calculated Florida’s state ceiling for 2024 to be $2,826,340,750.30 The following table shows
18
Those that are in bold italics are the ones that are subject to allocation of volume cap by the Division.
19
I.R.C. § 142(a) identifies 17 types of facilities that may be financed with exempt facility bonds. Additionally, Congress has
identified two other types of bonds that are to be treated as if they were exempt facility bonds, enterprise zone facility bonds
and empowerment zone facility bonds. See I.R.C. § 1394.
20
I.R.C. § 143(a).
21
I.R.C. § 143(b).
22
I.R.C. §§ 144(a) and 7871(c). Qualified small issue bonds are frequently referred to as industrial revenue bonds (“IRBs”)
or industrial development bonds (“IBDs”) and are issued to finance manufacturing facilities and farm property.
23
I.R.C. § 144(b). Additionally, qualified scholarship funding bonds, established in I.R.C. § 150(d)(2), are analyzed under
I.R.C. § 144(b)
24
I.R.C. § 144(c).
25
I.R.C. § 145.
26
I.R.C. § 146. The economic rationale for the limitation on the amount tax-exempt PABs that may be issued stems from the
inefficiency of the mechanism to subsidize private activity and the lack of congressional control of the subsidy absent such a
limitation. Supra, note 12.
27
I.R.C. § 146(d).
28
In 2022 the formula for the state ceiling was the greater of $110 multiplied by the state population or $335,115,000. This
amount increased in calendar year 2023 to the greater of $120 multiplied by the state population or $358,845,000. See § 3.20,
Rev. Proc. 2021-45, available at: https://www.irs.gov/pub/irs-drop/rp-21-45.pdf and § 3.20, Rev. Proc. 2022-38, available at:
https://www.irs.gov/pub/irs-drop/rp-22-38.pdf (last visited Feb. 2, 2024).
29
See § 3.20, Rev. Proc. 2023-34, available at: https://www.irs.gov/pub/irs-drop/rp-23-34.pdf (last visited Feb. 2, 2024).
30
Division of Bond Finance, Act Summary, available at https://www.sbafla.com/bond/Other-Functions/Private-Activity-
Bond-Allocation-Programs (last visited Feb. 2, 2024).
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the historical increase to the state ceiling as the per capita rate and state population have
increased.
Florida’s State Ceiling 2014-2023
Calendar Year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
IRS Per Capita $100 $100 $100 $100 $105 $105 $105 $110 $110 $120
State Pop. 19.55M 19.89M 20.27M 20.61M 20.98M 21.30M 21.48M 21.73M 21.78M 22.24M
State Ceiling $1.96B $1.99B $2.03B $2.06B $2.15B $2.24B $2.26B $2.39B $2.40B $2.67B
While the Code provides a default formula for the allocation of volume cap, each state may, by
law, provide its own formula for allocating its state ceiling.31 The Division is statutorily
designated to allocate volume limitation to those entities authorized to issue PABs in Florida
pursuant to the Florida Private Activity Bond Allocation Act32 and the rules promulgated
thereunder.33
Allocation of State Ceiling
For PABs subject to the state ceiling,34 issuers must have sufficient volume cap under the Code
or their state’s formula for allocating its state ceiling in order in order for the interest on those
bonds to be excluded from gross income for federal income tax purposes.35 States have a variety
of methods for distributing their state ceiling at the beginning of each year based on the purpose
or type of the proposed PABs, the location of the project, and the issuer requesting an allocation
of volume cap; additionally, the timeframe within which state ceiling is available for various
types of projects varies greatly from state to state. There are two predominant methods for how
volume cap is allocated in each state; one in which broad discretion is given to the program
31
I.R.C. § 146(e).
32
Part VI of chapter 159, F.S.
33
Chapter 19A-4, F.A.C.
34
The amounts of tax-exempt PABs issued as exempt facility bonds to finance mass commuting facilities, facilities for the
furnishing of water, sewage facilities, privately owned solid waste disposal facilities, qualified residential rental projects,
facilities for the furnishing local electric energy or gas, local district heating and cooling facilities, qualified hazardous waste
facilities, privately owned high-speed intercity rail facilities, privately owned qualified broadband projects, and qualified
carbon capture facilities, qualified mortgage revenue bonds, qualified small issue bonds, qualified student loan bonds, and
qualified redevelopment bonds are subject to an annual volume cap and cannot exceed the amount allocated. Tax-exempt
PABs issued to finance privately owned high-speed intercity rail facilities, privately owned qualified broadband projects, and
qualified carbon capture facilities only need an allocation for 25% of the amount of any tax-exempt exempt facility bonds
issued. I.R.C. §§ 142(a), 143, 144, and 146(g)(4)-(5). Certain types of PABs are not subject to the state ceiling but are subject
to other annual or lifetime caps under the Code. The amounts of tax-exempt PABs issued to finance qualified public
educational facilities, qualified green building and sustainable design projects, and qualified highway or surface freight
transfer facilities are separately limited in I.R.C. § 142. Qualified public educational facilities are subject to a separate annual
state volume cap, whi