Private Activity Bond  

Under the 1986 Code, PABs are defined as any municipal obligation, irrespective of the purpose for which it is issued or the source of payment, if more than 10% of the proceeds of the issue will finance property that will be used by a nongovernmental person in a trade or business, and the payment of debt service on more than 10% of the proceeds of the issue will be secured by property used in a private trade or business or payments in respect of such property, or derived from payments in respect of property used in a private trade or business.
These two tests ? the "private business use test" and the "private payment or security test" ? must be examined in connection with the issuance of any municipal security.