The House Republican tax bill unveiled Thursday would eliminate a tax break for a major financing tool for public-private partnerships, one of several bond provisions that would affect projects including professional sports stadiums.

Under the bill, income from private activity bonds, a tool that state and local governments offer to help private entities raise money for projects that are deemed to have public benefit, would no longer be tax exempt. The provision would increase revenue by $38.9 billion over 10 years, according to the Joint Committee on Taxation.

But the change would also force issuers to increase the interest rates on the bonds to make them more attractive to investors, whose income would decrease by the amount of the federal tax they’d have to pay. That, in turn, would lead to higher costs for private entities looking to partner with public bodies on new roads, bridges and other infrastructure — a major element of President Donald Trump’s outline for $1 trillion in new infrastructure spending.

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Under existing law, states and local governments can issue private activity bonds to finance a nongovernmental party that’s proposing to build something with a tangible public benefit, a category that can include myriad buildings and infrastructure including, for example, hospitals, theaters, sewer systems and toll bridges.

In a summary of the bill, House Ways and Means Republicans said the purpose was to eliminate a tax break for private entities.

“The Federal government should not subsidize the borrowing costs of private businesses, allowing them to pay lower interest rates while competitors with similar creditworthiness but that are unable to avail themselves of PABs must pay a higher interest rate on the debt they issue,” the summary said.

The provision would apply to bonds issued after 2017.

The proposal spawned pushback from finance and local government groups. Without the federal tax exemption, project sponsors would be pushed into the private banking market, increasing the cost of capital for such projects by 25 to 35 percent, said Toby Rittner, president and CEO of the Council of Development Finance Agencies. Rittner, whose group opposes the provision, said in addition to increased costs, it would lead to fewer projects being built.

“The other thing is projects just won’t happen,” he said “Project sponsors will say, ‘We can’t afford that capital.’ You’re going to see a scaleback.”

The provision would mainly affect projects with “really solid” revenue streams, Rittner said. Examples could include sewer, water and transit systems.

The National League of Cities criticized the proposal and other parts of the bill that would increase the tax burden for states and local governments.

“NLC remains concerned about any limitations placed on property tax deductions, the elimination of the deductibility of state and local sales and income taxes, and changes to bonds that help cities build strong economically vibrant communities,” Brian Egan, a spokesman for the group, said in a statement. “This includes the proposed elimination of the tax exemption for Private Activity Bonds (PABs), which are frequently used to create jobs and finance projects in cities for the public good.”

Delaware Sen. Thomas R. Carper, a Democratic member of the Finance Committee and a former governor, said he hadn’t looked closely at the bill’s text, but urged caution about changes to bond law.

“As governor, you want to have many tools in your toolbox for job creation, job growth,” he said. “One of those is the issuance of tax-exempt bonds that can be used to support a company that’s trying to grow, expand their activities, add workers. … I think we ought to tread carefully before we eliminate those.”

Other bonds

In addition to private activity bonds, the GOP bill targeted a few other areas of tax-exempt bond policy.

The bill would repeal the tax exemption for bonds issued to construct professional sports stadiums. The Joint Committee on Taxation said the repeal would increase federal revenue by $200 million over 10 years.

It would eliminate exemptions for advance refunding bonds, a tool that essentially allows local government to refinance their debt. Rittner called that proposal “baffling.” The joint committee said it would raise revenues by $17.3 billion over 10 years.

The bill would also eliminate tax credit bonds, which allow issuers to provide federal tax credits instead of interest payments.