Understanding Private Activity Bonds (PAB)

A Tool for Financing Affordable Housing in Grand Junction

What are PABs?

Private Activity Bonds (PABs) are tax-exempt bonds issued by or on behalf of local or state governments to finance projects that provide a public benefit, such as affordable housing, infrastructure, or economic development. Because the interest earned by investors is exempt from federal taxes, PABs carry lower interest rates than conventional loans, making them an attractive financing option for projects that serve the community.

Every year, the State of Colorado receives a federal allocation of PAB authority, called the volume cap, which is distributed to local governments based on population. In Grand Junction, annual allocations typically range between $3–4 million. If not used, local allocations can be reassigned, carried forward, or returned to the statewide pool.

Why are PABs Important for Affordable Housing?

One of the most powerful aspects of PABs is that they unlock access to the federal 4% Low-Income Housing Tax Credit (LIHTC) (non-competitive) program. Projects financed with PABs automatically qualify for these tax credits, which bring millions of dollars in equity investment to lower development costs and keep housing affordable. This combination is especially important given the shortage of affordable housing in Grand Junction for households earning less than $25,000 a year.

Grand Junction’s History of Using PABs

• 2020: $3.4 million assigned to the Colorado Housing and Finance Authority (CHFA) for its FirstStep homeownership program.

• 2021: $3.6 million allocated to the Monument Ridge Townhomes, a 166-unit HUD Section 8 property undergoing significant renovation.

• 2022: $3.6 million received but not designated; the balance was returned to the state.

• 2023: Allocation of just over $4 million. Staff recommended prioritizing use for local affordable housing projects and began formalizing a process for applications. The City carry-forwarded their balance to be able to be utilized on an affordable rental housing project.

• 2024: Allocation of just over $4 million. The City carry-forwarded their balance to be able to be utilized on an affordable rental housing project.

• 2025: Allocation of just over $4 million. The City was able to take 2025 and combine it with 2023 & 2024 balances to award it to the Ascent Project at the Salt Flats. Additionally, Mesa County contributed their 2025 balance as well.

This evolving approach reflects the City’s recognition that PABs are a valuable local tool, especially as interest rates rise and conventional financing becomes more expensive.

Grand Junction’s Next Steps

In 2023, The City:

1. Formalized an application process – Developers can now apply for the balance of PAB that has been allocated to the City ----ensuring developers and community members clearly understand how to apply for PAB allocations.

2. Adopted a carryforward policy – If a project is not selected in the year of the allocation, the unused allocations can roll into future years, keeping resources local and ensuring the ability to combine multiple year allocations so that projects are feasible.

3. Prioritize affordable housing – While PAB allocations can be used for various purposes, City Council has prioritized use of PAB for affordable rental and homeownership housing - aligning with City Housing Strategies to expand and preserve affordable rental and ownership housing.

Learn More

• City of Grand Junction Housing Division: www.gjcity.org

• Colorado Department of Local Affairs (DOLA) – Division of Housing: cdola.colorado.gov/housing

• Colorado Housing and Finance Authority (CHFA): www.chfainfo.com

• HUD – Tax-Exempt Bonds and Affordable Housing: huduser.gov

✅ In summary: Private Activity Bonds are a critical but often overlooked financing tool that help Grand Junction attract private investment into housing and community development. By leveraging PABs, the City and its partners can create long-term, affordable housing opportunities while keeping local resources working for the community.

Q: Does the City go into debt when it allocates PABs?

A: No. Allocating PABs does not create debt for the City. The bonds are issued for the benefit of the developer or project sponsor, and repayment is entirely their responsibility. The City acts as a conduit, making its allocation available to help unlock tax credits and financing, but it is not financially liable.

Q: What happens if the City doesn’t use its allocation?

A: If not used, the City can either carry forward the allocation for specific projects in future years or return it to the state pool, where it may be reassigned to other communities. Carrying forward allocations helps keep resources local.

Q: Who decides how PABs are allocated locally?

A: Allocations are reviewed by City staff, with recommendations made to City Council, which provides the final approval.