Technical Assistance


CDFA Spotlight:
Volume Cap Overview

By Stan Provus

The “volume cap” for any issuing authority is the maximum amount of tax-exempt private activity bonds that may be issued during any calendar year. Some folks also refer to the term “volume cap” as the “state ceiling “, which is the maximum amount of private activity bonds that may be issued in a state during a calendar year. This article reviews regulations governing the state ceiling.

To the best of our knowledge, all states have statutes that dictate how the volume cap is to be allocated among issuers and/or categories of private activity bonds in a state such as state and local issuers or qualified student loan, mortgage, exempt facility, and other qualified private activity bonds subject to an allocation of the volume cap. Prior to the adoption of state laws, IRS rules allocated the volume cap equally between state and other issuing authorities. Many state statutes provide for initial allocations or reservations of volume cap to qualified categories of private activity bonds and are somewhat complicated. The state of Oklahoma volume cap allocation system is described below.

Unused allocations of volume cap in a state may be reallocated to other types of qualified bonds later in the calendar year. Carryforward allocations are good for three years from the year the carried forward election was made. If any private activity bond issued in a calendar year exceeds the volume ceiling, that issue is taxable—when volume cap is scarce some issuers issue taxable bonds which are converted to tax-exempt bonds during the next year when volume cap becomes available.

Private Activity Bonds Subject to the Volume Ceiling (Cap) and eligible for Carryforward

Bonds 1-15 are private activity bonds subject to the unified volume ceiling or cap and eligible for carryforward. Bond #15 is not eligible for carryforward. Bonds # 16-20 are private activity bonds, each of which has its own separate cap—these bonds do not fall under the unified volume ceiling.

  1. Qualified student Loan
  2. Qualified mortgage bonds or mortgage credit certificates
  3. Qualified redevelopment bonds
  4. Exempt Facility Bonds
  5. Mass Commuting facilities
  6. Water furnishing facilities
  7. Sewage facilities
  8. Solid waste disposal facilities
  9. Qualified residential rental projects
  10. Facilities for the local furnishing of electric energy or gas
  11. Local district heating and cooling facilities
  12. Qualified Hazardous waste facilities
  13. 25% of bonds for privately owned high-speed intercity rail
  14. Qualified enterprise zone facility bonds
  15. Qualified Small Issues (only category subject to cap but not eligible for carryforward)
  16. Qualified Public Education Facility Bonds have their own volume cap and unused portions may be carried forward. The cap is the greater of $10 times the state population or $5 million.
  17. Qualified Zone Academy bonds have their own separate cap--$400 million nationally in 2006 and 2007. This volume cap is allocated among states based on their respective populations below the poverty level and is then allocated by each state to qualified zone academies within the state.
  18. Qualified highway or surface freight transfer facilities. Also has a separate cap. $15 billion aggregate volume cap allocated by the Secretary of Transportation.
  19. Clean Energy Renewable bonds are also subject to their own volume cap.
  20. There are other bonds, which are also subject to their own separate volume ceilings such as Gulf Opportunity Zone, and New York Liberty Zone bonds.

2007 Volume Cap

For the 2007 calendar year the volume cap is the greater of $85 multiplied by the state population or $256,235,000. The volume cap is adjusted annually for cost of living increases and state population changes. In December of each calendar year the IRS publishes the new volume caps for the following year—see www.irs.gov then click on tax-exempt bonds at the top and enter “volume cap” in the search engine. Alternatively call 202.622.3040.

Case Volume Cap Allocation Systems
Case Study: Oklahoma

Each state has its own legislation governing how their volume cap is allocated among issuers (State vs. local) or types of private activity bonds. Oklahoma’s system is an example of how one state cap allocation system works. Not unlike other states, the Oklahoma formula for allocating the State ceiling illustrates the demand for cap among different size issuers and types of bonds with a clear preference given to housing and small issue bonds for manufacturers. It also shows an effort not to waste cap by recapturing unused reservations into a Consolidated Pool on September 2nd of each year and then to make carry forward allocations on December 20th with unallocated cap from the Consolidated Pool. The 2007 state ceiling was $304,233,020.

From January 1st to September 1st of each calendar year, Oklahoma makes the following reservations of volume ceiling to various types of private activity bonds subject to the cap:

1. 15.5% for Student Loan bonds issued by state issuers;

2. 12% to an Economic Development Pool. Allocations of cap from this pool are made at the recommendation of the Director of the Oklahoma Department of Commerce and review and approval of the Council of Bond Oversight . Projects must create manufacturing jobs or contribute to another economic development objective of the state;

3. 12% is reserved for a Small Issue for manufacturers Pool. This Pool is available to state and local issuers on a first-come, first-serve basis;

4. 1% is reserved for Beginning Agricultural Producer bonds; i.e. first-time farmer programs;

5. 2.5% is reserved for an exempt facility pool allocated to state and local issuers on a first-come, first-serve basis;

6. 15% is reserved to the Oklahoma Housing Finance Agency Pool; up to 10% of the state ceiling may be used to increase this pool from 15% up to 25% in the subsequent calendar year, if the Oklahoma Strategic Military Planning Commission certifies that the available housing stock in the area near a military installation at risk of closure or adverse realignment is inadequate and that the increase in available funds for construction or rehabilitation of such housing would make closure or an adverse realignment of the military installation less likely. This certification must be made to the State Bond Adviser by Nov. 15th of each calendar year and shall make a specific recommendation on the percentage increase for the Housing Finance Agency Pool in the next calendar year. The State Bond Adviser makes the final determination on the amount of any increase. The State Bond Adviser is a statutory position responsible for approval fees paid to professionals on state bond issues, advising the Council of Bond Oversight on issuance approvals, among other responsibilities.

a. From 1/1 to 9/1 of each year, the Housing Finance Agency Pool is allocated to the Agency for qualified programs such as single and multi-family bonds

b. Provided 35% of the Housing Finance Agency Pool is set-aside for at least three months for the origination of single-family loans in counties with populations of 300,000 or less.

7. 4% of the state ceiling is reserved in a State Issuer Pool from 1/1 to 9/1 of each year. This Pool is allocated to projects of state issuers who have issued more than $75 million of qualified small issues for manufacturers.

8. 17.5% of the cap is reserved for a Local Issuer Single Family Pool from 1/1 to 9/1 of each year. This Pool is allocated to local issuers in counties of 300,000 or less on a first-come, first-serve basis, provided no single issuer can receive more than $10 million.

9. 12.5 % of the State ceiling is reserved and placed in a Metropolitan Area Housing Pool. This Pool is only available to public trusts ( local issuers) providing single family having a county with a population exceeding 300,000 and which has issued tax-exempt single-family housing revenue bonds of at least $400 million.

10. No more than 50% of the cap from this Pool can be allocated to any single county.

11. 8% of the cap is reserved for a Rural Area Housing Pool which is available to single-family projects undertaken by local issuers in counties with a population of 300,000 or less on a first-come, first-serve basis, provided no single issuer or project can receive an allocation of more than 4% of the state ceiling.

The parentage of the state ceiling allocated to each of these Pools (together they total 100%) will be proportionately reduced by the amount of any increase recommended and approved in # 6—State Housing Finance Agency Pool.

On September 2nd of each calendar year, state ceiling amounts which have not been allocated from the Economic Development Pool, Qualified Small Issue Pool, Beginning Agricultural Producer Pool, Exempt Facility Pool, Student Loan Pool, Oklahoma Housing Finance Agency Pool, State Issuer Pool, Local Issuer Single-Family Pool, Metropolitan Area Housing Pool, and the Rural Housing Pool shall be consolidated into a Consolidated pool.

All local and state issuers are entitled to receive an allocation from the Consolidated Pool based on the chronological order of completed applications received after January 1 which have not received an allocation from any of the Pools that were in effect from 1/1 to 9/1 of each calendar year.

From December 20-30th of each year, carryforward allocations are made from unused cap in the Consolidated Pool.


The volume cap governs the dollar amount of private activity bonds a state or issuer may issue in a calendar year. Demand for cap generally exceeds supply, particularly in larger states and the issue of managing and determining appropriate volume cap use continues to be a challenge throughout the country.


CDFA National Sponsors

  • Alliant Insurance Services, Inc.
  • BNY Mellon
  • Bricker Graydon LLP
  • Bryan Cave Leighton Paisner LLP
  • Business Oregon
  • CohnReznick
  • Frost Brown Todd LLP
  • Grow America | Formerly NDC
  • Hawes Hill and Associates LLP
  • Hawkins Delafield & Wood LLP
  • Ice Miller LLP
  • KeyBanc Capital Markets
  • Kutak Rock LLP
  • McGuireWoods
  • MuniCap, Inc.
  • NW Financial Group, LLC
  • PGAV Planners, LLC
  • Raza Development Fund
  • SB Friedman Development Advisors
  • Stifel Nicolaus
  • U.S. Bank
  • Wells Fargo Securities
  • Z. The Bond Buyer
Become a Sponsor