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Private Activity Bonds (PAB) Overview - a guide for local communities.

Private Activity Bonds (PAB)
Private Activity Bonds (PAB)
CHFA is proud to support its mission of affordable housing and community development using a variety of innovative resources including Private Activity Bond (PAB) volume cap.


A Private Activity Bond (PAB) is a special class of tax-exempt bond that benefits private (non-governmental borrowers) that can be issued by states, local governments or housing authorities. These “state or local issuers” are bound by very specific restrictions as to the use of the bonds and the compliance requirements related to those bonds. The benefit of the PABs are that the interest paid to the bondholders is exempt from Federal income tax, which generally results in a lower borrowing cost the eligible project or a lower interest rate mortgage in the case of single family bonds. A population-based formula establishes the maximum amount of PABs that a state can issue annually, which amount is referred to as “cap” or “volume cap.” Currently, the formula is $110 per capita, which allows $639,327,590 in PAB volume cap for Colorado in 2022. It is important to recognize that the allocation of volume cap to a state or local issuer is only an authorization to issue bonds and has no cash value. Traditional components of a bond issue including a source of repayment, collateral, and reserves, as well as eligible investors are all required to utilize PAB.

PAB has a specific expiration and generally must be issued the same year the volume cap is received. If the cap is not issued, the issuer can elect to carry-forward the cap for three additional years by making a special filing with the Internal Revenue Service. If the cap is not carried-forward or assigned to another eligible issuer, the issuing capacity is lost.

PABs in Colorado

In Colorado, the Department of Local Affairs (DOLA) through the Division of Housing (DOH) is the administrator of PAB cap. Colorado law requires that 50 percent of the volume cap goes to statewide authorities including CHFA (48 percent) and the Colorado Agricultural Development Authority (2 percent). Up to 50 percent of the remaining cap is allocated to local issuers (cities and counties - 47 percent) with a minimum population of 19,048 (equal to a minimum of $1 million in volume cap). Any remaining volume cap (3 percent) is retained by the DOLA for future allocations from a statewide pool (referred to as the Statewide Balance). Due to changes in population, volume cap allocated to local issuers can change annually. More information about DOH’s PAB administration is available at

Local Issuers

Local issuers have several options for using their volume cap.

  1. Local issuers can issue the bonds. Examples may include a manufacturing project or an affordable housing development located in the community. However, for local issuers who receive a relatively small amount of volume cap, acting as the issuer may not make economic sense.
  2. Local issuers can assign their volume cap to another local issuer. It is not uncommon for local issuers to assign cap to another issuer or to combine cap within a city and county relationship. This creates the opportunity to support a larger project.
  3. Local issuers can assign their volume cap to CHFA. CHFA provides funding for a wide variety of housing and economic development related projects. If they have a specific project in mind or would like to support projects in their jurisdiction, local issuers can assign to CHFA to be used for any eligible project, including a specific project. CHFA uses its best efforts to utilize a local issuer’s cap in their community, however utilization is based on project needs statewide. There is no cost to assign cap to CHFA; CHFA handles all DOLA and IRS reporting on behalf of the local issuer.
  4. Local issuers can do nothing and let their cap revert to DOLA’s Statewide Balance. Local issuers have until September 15 to decide what to do with their volume cap, which includes completing all the applicable assignment documents and notifying DOLA. For any local issuer who does not meet the September 15 deadline, the cap is automatically returned to the statewide pool.

CHFA is available to discuss or make a presentation about any of these options to local issuers to help them make the best determination to meet their community needs.

Eligible Uses for PABs

  • Affordable multifamily housing including new construction or acquisition and rehabilitation for low- and moderate-income individuals and families.
  • Single Family Mortgage Revenue Bonds (SFMRBs) used to finance the purchase of mortgages made to income-qualified first-time homebuyers.
  • Mortgage Credit Certificates (MCCs), a financing enhancement for income eligible first-time homebuyers (can’t be combined with SFMRB financing).
  • Industrial Development Bonds for smaller manufacturing projects (less than $10 million) that produce any type of goods.
  • Qualified Redevelopment Bonds used to acquire and redevelop blighted areas (typically not used in Colorado).
  • Solid Waste Disposal Bonds used to finance certain disposal facilities utilizing certain waste disposal processes.

How Does CHFA Use PABs?

CHFA understands the importance of this valuable and limited resource for creating and preserving affordable rental housing, affordable homeownership opportunities and for economic development and job creation. CHFA works closely with DOLA and local issuers to ensure full utilization of volume cap in Colorado.

Single Family Mortgage Revenue Bonds (SFMRBs)

Issuing SFMRBs and using the proceeds to purchase loans from participating lenders supports income-eligible first-time homebuyers statewide with an affordable mortgage and access to down payment assistance.

Mortgage Credit Certificates (MCCs)

An MCC allows an income-eligible first-time homebuyer to take 20 percent of the interest they pay on their mortgage as a direct credit against their Federal income tax liability. The remaining 80 percent of their mortgage interest is still a standard deduction. This benefit can be used every year the homebuyer resides in the home as their primary residence, even if the property is refinanced.

Multifamily Mortgage Revenue Bonds

Over the past few years multifamily bonds have been the primary user of volume cap in Colorado due to the ongoing demand for affordable rental housing. The PAB is paired with non-competitive Federal Low Income Housing Tax Credits and the competitive Colorado Affordable Housing Tax Credits to create affordable multifamily housing.

Industrial Development Bonds

Small manufacturing is making a comeback in many Colorado communities. Eligible uses include the acquisition, rehabilitation, or new construction of real estate or equipment purchases. The Tax Code limits the bond financing to $10 million and is further limited by capital expenditure spending of the business. Costs to issue bonds can often be prohibitive for smaller transactions, so CHFA offers a mini-bond program for those transactions that are under $5 million using standardized documents to minimize costs. Unlike multifamily and single family uses, current year cap must be utilized for industrial development bonds and cap cannot be carried forward for that purpose.

Local Issuers Assigning to CHFA

If a local issuer is considering assigning its CAP to CHFA, we offer the following:

CHFA welcomes the opportunity to speak to you about this valuable resource and help you make the best decision for your community. Please contact the PAB Manager at  [email protected] for more information or to schedule a concept meeting, training, or presentation.

Remember, this is a time sensitive resource. All documentation must be received by CHFA no later than September 14, in order for CHFA to provide proper notice to DOLA . We look forward to your partnership.


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