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Infrastructure Investment and Jobs Act Becomes Law, Establishes New Tax-Exempt Bond Categories for Broadband and Carbon Capture Facilities

On November 8, 2021, H.R. 3684, the “Infrastructure Investment and Jobs Act” was passed by Congress, and on November 15, 2021, President Biden signed it into law. Enacted with bipartisan support, this “hard infrastructure” legislative package authorizes significant levels of investment and reinvestment in public infrastructure, including $110 billion for roads and bridges, $73 billion for power grid upgrades and improvements, $66 billion for rail projects, $65 billion for broadband build-out, $55 billion for drinking water projects, $42 billion for airports and seaports and $39 billion for public transportation.

The Act has three provisions directly impacting the market for tax-exempt bonds. First, the Act establishes a new category of tax-exempt bonds for privately-owned or -operated “qualified broadband projects”. Generally, capital costs of new high-speed broadband projects (i.e., those projects that will result in internet access at speeds of 100 megabits per second or greater for downloads and 20 megabits per second or greater for uploads) will be eligible for tax-exempt financing under this provision of the Act if they are designed to provide broadband service to historically underserved areas (i.e., areas in which more than 50% of residential households do not have access to fixed, terrestrial broadband service which delivers data at speeds of at least 25 megabits per second for downloads and of at least 3 megabits per second for uploads). In order to qualify for financing under this provision, at least 90% of the locations served by the upgraded broadband facilities must have been previously underserved. The Act also requires, prior to bond issuance, that each broadband service provider in the affected area receive notice of the project and its intended scope, soliciting information from the service providers about their ability to manage a gigabit-capable broadband network and affording those providers at least 90 days to respond. Generally, 75% of an issue of bonds for a “qualified broadband project” will be exempt from the private activity bond volume cap allocation requirements of Section 146 of the Internal Revenue Code; and the entire issue will be exempt from the volume cap requirement if the broadband project being financed by the issue is owned by a State or local governmental unit. Bonds can be issued on a tax-exempt basis for qualified broadband projects on and after January 1, 2022.

Second, the Act creates another new category of tax-exempt bonds for privately-owned or -operated “qualified carbon dioxide capture facilities”, including certain carbon capture components of “industrial carbon dioxide facilities” in which carbon dioxide-emitting processes such as fuel combustion, gasification, bio-industrial, fermentation and chemical or fertilizer manufacturing are carried out, as well as “direct air capture facilities” designed to remove carbon dioxide from ambient air. Certain geological gas facilities and air separation assets are, however, excluded from the definition of “qualified carbon dioxide capture facilities”. Generally, to be eligible for tax-exempt bond financing, the carbon capture components of “industrial carbon dioxide facilities” must be designed to capture and store at least 65% of the carbon dioxide that otherwise would be released as a result of the industrial process carried on, but it may be possible to issue tax-exempt bonds to finance a portion of the costs of otherwise-eligible carbon capture components if the level of capture and storage is less than 65%. It should be noted that the carbon oxide sequestration credit available to a taxpayer under Section 45Q of the Internal Revenue Code will be reduced if tax-exempt bonds are issued to finance facilities under this provision of the Act. Tax-exempt bonds can be issued on and after January 1, 2022 to finance “qualified carbon dioxide capture facilities”. These bonds will also be exempt from the private activity bond volume cap requirements to the same extent as bonds issued for qualified broadband projects.

Finally, the Act raises the national volume limitation for qualified highway or surface freight transportation facilities from $15 billion to $30 billion, effective for bonds issued after November 8, 2021.

Apart from these provisions of the Act, which have a direct bearing on the market for tax-exempt bonds, it appears that many of the other provisions of the Act will have a stimulative effect on the ability of State and local governments to issue bonds to build public infrastructure. Moreover, it appears possible that in the relatively near future, the “Build Back Better” reconciliation bill, which is currently under consideration in Congress to support “soft infrastructure”, may contain additional bond-related provisions, such as a restoration of tax-exempt advance refunding bonds, the re-establishment of direct-pay subsidy bonds comparable to the “build America bond” program that was in place in 2009 and 2010, and an increase in the $10 million cap on “qualified small issuers” that are permitted to issue “bank-qualified bonds” under Section 265 of the Internal Revenue Code. Bond market participants and membership organizations will want to monitor legislative developments over coming months to determine whether additional bond-related provisions are enacted into law, as part of the Build Back Better reconciliation package or otherwise.


The preceding is a brief summary of the bond-related provisions of the Infrastructure Investment and Jobs Act.  Please contact Antonio Martini, Kris Moussette, Tom Marrion or any other member of Hinckley Allen’s Public Finance Group if you would like more information about the Act or any other current or future tax law development that may affect access to tax-exempt bond financing, or if you have any other tax-exempt bond matter you would like to discuss.