Private Activity Bonds


Private activity bonds (PABs) are issued by state or local governments, which apply the proceeds of the bonds to private business purposes with a public benefit, such as low income multifamily housing; industrial development; enterprise zones or facilities that treat water, sewage, or hazardous materials. Because PABs are tax exempt, they can provide lower interest rates than other forms of borrowing, facilitating the development of projects that might otherwise be infeasible. Like revenue bonds, PABs are secured by and paid from the revenues of the project for which they are sold. Unlike typical municipal bonds, however, the private business that receives the proceeds – not the issuing government agency – is not responsible for paying the principal and interest on PABs.