Since the 2024 elections, the tax-exempt bond market feared that Congress would cut back on tax-exempt bonds to pay for the extensions of the tax benefits in the 2017 Tax Cuts and Jobs Act. Now that Congress has enacted Public Law 119-21, referred to in the press as the One Big Beautiful Bill (OBBB), the industry has actually gained ground.
One interesting provision in the OBBB allows tax-exempt private activity bonds (PABs) for “spaceports.” How does the new statute work? And will people actually do these deals?
Expansion of tax-exempt bonds to spaceports
The OBBB authorizes tax-exempt PABs for “spaceport projects.” A spaceport is any facility (including buildings, structures, equipment, etc.) located near a “launch site or a reentry site” if the facility serves the following specific functions:
- Flight control operations
- Launch services and re-entry services
- Transferring crew, spaceflight participants, or space cargo to or from spacecraft
- Manufacturing, assembling, or repairing any component of the above facilities, spacecraft, or space cargo.
The new statute defines many of these terms using the definitions from section 50902 of Title 51 of the United States Code, as in effect on the date of enactment of the OBBB (July 4, 2025). Title 51 is captioned “National and Commercial Space Programs,” and section 50902 (“Definitions”) is located in Subtitle V (“Programs Targeting Commercial Opportunities”), Chapter 509 (“Commercial Space Launch Activities”).
Spaceport facilities are treated like airport facilities
The spaceport PAB provisions are tethered to the existing airport PAB provisions, which have deep roots in the law. Indeed, the heading of section 70309 of the OBBB, which creates the spaceport PAB program, says it all: “Spaceports are treated like airports under exempt facility bond rules.” To accomplish this, the section of the Code that allows PABs for “airports,” (Code section 142(a)(1)) now refers to “airports and spaceports.” This means that any other provision of the Code that applies to Code section 142(a)(1) will automatically apply to both airports and spaceports.
Here are a few examples:
- Spaceport PABs are subject to the Alternative Minimum Tax (AMT)
- Spaceport PABs are exempt from the volume cap
- Spaceport PABs are subject to the 2% limit on bond-financed costs of issuance and the 120% economic life test, and they have to go through the public notice, hearing, and approval process required by the Tax Equity and Fiscal Responsibility Act (TEFRA).
Governmental ownership requirement and safe harbor
Importantly, like airport PABs, spaceport PABs are subject to the “governmental ownership” requirement. This requirement prevents private operators from having economic ownership of the facilities unless they want to essentially pay for them twice. Moreover, as with airport PABs, the federal government doesn’t qualify for economic ownership—it must be a state or local government.
However, the same familiar safe harbor rules that allow limited leases of property financed with airport PABs also apply to spaceport property. That is, a private operator could lease a spaceport financed with spaceport PABs as long as (1) the operator agrees not to claim federal depreciation deductions or tax credits for the property, (2) the lease term is not more than 80% of the reasonably expected economic life of the property (so that the state or local government gets back the property with enough useful life left to allow it to say that they have something of value they’ll get back at the end), and (3) the private operator has no option to purchase the property other than at fair market value determined on the exercise date.
In contrast, other sections of the Code and Treasury Regulations contain provisions that refer not to the statutory cite for airport PABs (section 142(a)(1)), but specifically to “airports.” Thus, these will not automatically apply to spaceport PABs. Questions will likely include:
- Could these provisions be read to apply to spaceports? For example, do spaceport PABs qualify for the exception to the rule that limits the use of proceeds of PABs for land acquisition where the land is acquired “for future use as an airport”?
- Similarly, what about Treasury Regulation section 1.103-8(e)(2), which provides detailed rules for when land acquired for noise abatement qualifies for PAB financing, but refers to “airports” and not to the statutory cite?
Another example would be the relaxed TEFRA rules for airports that span multiple jurisdictions, and there are surely more. Guidance from Treasury or technical correction legislation from Congress would help confirm that these provisions also apply to spaceports, which would be consistent with the idea expressed in OBBB that spaceports should be treated like airports under the PAB rules.
Relaxed rules for spaceport bonds
In addition, the OBBB makes spaceport bond financing even more user-friendly than airport bonds in several ways.
The OBBB contains a helpful provision that softens the blow of the governmental ownership requirement. It provides that spaceport property located on land leased by a governmental unit from the United States won’t fail the governmental ownership requirement if the lease to the private operator meets the requirements of the safe harbor described above.
The OBBB provides that spaceport facilities are not required to be “available for use by the general public.” Although not explicit, this is presumably intended to override Treasury Regulations section 1.103-8(a)(2), which otherwise requires all facilities financed with exempt facility PABs to “serve or be available on a regular basis for general public use, or be a part of a facility so used.” This requirement typically is not a problem in airport bond financings because, even though the facilities may be leased to a small handful of private entities (such as the airlines that use a typical airport facility), the rule is satisfied if each of those private entities is a common carrier. Spaceport operations may not serve the public in the same way as airports, so this provision helps significantly.
The OBBB clarifies that the prohibition on federal guarantees does not apply to certain arrangements likely found in spaceport bond transactions. Specifically, it says that a bond won’t be treated as federally guaranteed (and therefore taxable) merely because the US government pays the spaceport operator or the issuer rent or user fees to use the spaceport. This is consistent with the prevailing interpretations of the existing federal guarantee rules (see, Private Letter Ruling 200309003, for example) but is nonetheless a helpful clarification.
Perhaps the most significant and helpful change in this legislation is that it permits exempt facility bonds to be used for spaceport manufacturing facilities. For many years, there has been a red line between costs that can be financed with exempt facility PABs on the one hand, and manufacturing on the other hand. Only “small issue manufacturing bonds” could be issued for manufacturing facilities, and because the relevant size limits in these provisions have not been indexed for inflation, these deals get smaller and less economically feasible with each passing year. The OBBB makes this totally clear by turning off the rule that prohibits airport PABs from financing “any industrial park or manufacturing facility.”
Drafting matters: Legislative architecture and market reception
A word on the “architecture” of the statute—the actual craft and shape demonstrated by its language and structure. Setting aside the political goals of a municipal bond bill, there are principles for drafting that tend to appeal to the tax-exempt bond market, which values consistency and proven concepts over novelty and abhors the reinvention of the wheel. Programs that introduce too many new concepts, use vague language, or try to “do too much” risk rejection by the market. For example, broadband PABs or carbon capture PABs were created in the 2021 infrastructure law. However, few, if any, have been issued, in part, because they did not stick to these drafting principles.
In this scenario, the market will likely respond favorably to Congress’s choice to define the technical terms governing what qualifies as a spaceport with reference to an existing body of law that has been tilled and tended by the administrative agencies with expertise over the area. The other market-favorable move was anchoring the spaceport bond provisions in the existing airport bond provisions, which have very deep roots dating back to the 1970s. This clarity enables issuers, borrowers, and underwriters to strategize with confidence as they begin to structure transactions.
While the statute on its face seems well-crafted and favorable to the tax-exempt bond market, it’s entirely possible that something will derail the goals of the statute. Perhaps parties in this space will be unwilling to live with the economics of the governmental ownership requirement. Perhaps the upside of equity returns will be too lucrative and make tax-exempt bond financing not the best economic choice. And perhaps some aspects of the statute, which seems quite clear at first glance, will prove to be unworkable in practice. As the legal and practical landscape evolves, Nixon Peabody’s Public Finance lawyers are well-positioned to support clients through each phase of new spaceport financing deals.