What are Private Activity Bonds (PABs) used for?

Private Activity Bonds (PABs) are a type of tax-exempt bond issued by a governmental entity to finance projects that have a significant private component yet serve a public purpose. The primary use of PABs is to support private projects that benefit specific individuals or entities, such as affordable housing developments, research facilities, and certain types of commercial projects. This financing structure allows the private sector to undertake projects that would not generally be feasible or attractive without the lower interest rates that come from tax exemptions on the bond interest.

The attractiveness of PABs lies in their ability to provide financial assistance for projects that create jobs or improve public welfare, even though the projects are developed by private entities. By issuing these bonds, governments can stimulate economic development and provide necessary infrastructure without directly financing the projects themselves. This unique ability to intertwine public benefits with private interests is what defines PABs and distinguishes their function from more traditional government-funded projects.