Government bonds are an essential, but underutilized tool to support sustainable infrastructure. The U.S. Treasury's tax expenditures, essential for budget approval, often go misunderstood by taxpayers and corporations alike. Many assume tax exemptions and credits are perpetual, yet they require continuous Congressional approval. This misconception could threaten essential investments, particularly those tied to the Inflation Reduction Act (IRA).
Public Purpose Bonds emerge as a critical solution. Unlike typical "Green Bonds," which may not fully allocate raised capital to green projects, Public Purpose Bonds ensure that 100% of the capital is invested in works that are designated as serving a public purpose. Many VCs and financial institutions launch "Green Bonds,” in which bond purchasers often assume that 100% of their investment is being spent on green infrastructure. But, in fact, it is often the case that at any point in time, 30% to 50% of the capital raised through a "Green Bond" is held in a capital reserve that is invested in other bonds and equity that is not necessarily very green. Often, only a portion of the invested capital is actually allocated to green infrastructure. This distinction is critical in the context of sustainable infrastructure, where misallocated funds can undermine green initiatives. The appeal of Public Purpose Bonds extends beyond their transparency; they also empower state and local governments to determine which projects might best serve their communities, ensuring that investments align with local priorities, not just federal guidelines.
Moreover, shifting to Public Purpose Bonds could significantly benefit individual taxpayers – lower-and- middle-income families who are now seeing their pension funds erode. The Congressional Budget Office (CBO) currently estimates that an overwhelming 90% of the federal interest income tax exemptions earned by the Public Purpose bondholders are realized by individuals rather than corporations. This contrasts sharply with the benefits distribution of other federal taxpayer support vehicles, particularly those used to implement most of the new subsidies enabled by the IRA. Fully 95% of the IRA-enabled tax benefits are typically realized by large corporate entities.
Is it good government policy to perpetuate support measures that most often translate into share buy-backs and dividend increases for high net-worth investors? Public Purpose Bonds at least create an opportunity for wage-earners to save more and, potentially, to fill at least a part of that growing financial hole in their pension plans.
We need to rethink how public support for sustainable investments is structured. This shift is urgently needed, given the looming pension crisis. Private bankers have openly acknowledged that returns on the pension funds they manage on the public’s behalf have been impaired over the last number of years, and are likely to be further impaired if a commercial building credit crunch starts to kick in, which appears ever more likely. Even before accounting for low returns on pension fund investments, most analysts agree that, in aggregate, the combined assets held in US pension funds are likely to fall short of 2027 liabilities, by as much as 30 percent. With U.S. pension funds beginning to face these dramatic shortfalls by 2027, the burden of elder care will increasingly fall to younger generations. Investments that prioritize critical local infrastructure, especially to prioritize climate change resiliency such as clean water and secure energy supply and generate sustainable employment, and which provide tax benefits directly to families through Public Purpose Bonds, offer a more secure and community-focused path to a sustainable future.
