Market Reacts to Obama's America Fast Forward Bond Program
Image: Bloomberg News
Image: Bloomberg News
"The BDA is in full agreement with the National League of Cities and others when expressing real concern if the AFF is viewed as a replacement for tax exempt municipal bonds. There already exists an efficient model with a defined marketplace that has benefited state and local governments and tax payers for 100 years - the tax exempt municipal bond market. Moreover, sequestration, with its arbitrary cuts to reimbursement payments for direct-pay bonds like AFF, will do real, long lasting harm to the marketability and desirability of direct-pay bonds for issuers and investors. "
There is not a lot of detail the White House put out but at least they recognize the role state and local governments have with infrastructure. This is encouraging. But this isnt likely to gain momentum in the short-term. This would have to take a tax bill being passed and that seems unlikely. This isnt going to go anywhere until deficit reduction is resolved.
We are all aware that there are huge infrastructure needs and they create jobs. The question is BABs originally were successful because the subsidy was so large and they were cheap. It all depends on what the incentive is to the investor and until that is defined, its just a nice idea. The problem is you have huge infrastructure needs and what kind of fiscal stress does it place on states and municipalities. You are saying your fed government is creating a program to encourage more borrowing to build projects. Should states borrow more? Thats not fiscally prudent.
The presidents support for critical infrastructure investments is very much appreciated. The proposal to create a new form of Build America Bonds probably will be widely supported in the muni community based on the success of BABs although the details of the level of federal support for the bonds will be important and the sequestration threat to BABs payments certainly has taken some of the luster off this form of financing. The critical error, however, would be to think that this is a substitute for traditional tax exempt financing and widely applicable across thousands of issuers and borrowers. That's wrong and the administrations neglect, disinterest and treatment of tax exempt financing, as exemplified in the 28% cap proposal is very unfortunate.
To the extent that America Fast Forward bonds represent another arrow in the quiver for state and local governments to access private capital markets, state treasurers would generally look upon it favorably. We would be interested in hearing more specifics. The National Association of State Treasurers first priority, however, is to maintain the current tax-exempt status of municipal bonds, as they are the primary and most efficient financing mechanism for state and local governments.
"CDFA commends the President for his bold thinking in accelerating infrastructure investment through the America Fast Forward Bonds proposal. The bond finance industry has embraced direct subsidy bonds in the past and we imagine that these tools would be embraced again if approved by Congress. Unfortunately, the details of the President's proposal - namely the amount of the subsidy and the amount of available resources - does not provide a full basis to make an evaluation. CDFA also has concerns about the nature of how traditional tax-exempt bonds, namely private activity bonds, are characterized in the proposal. We believe that any proposal to increase infrastructure investment must come with reciprocal and complimentary tax-exempt bond reform. If the President is serious about improving infrastructure, there will also need to be supportive bonds financing for private industry. Manufacturing, exempt facility and 501c(3) bonds are all in need of significant reforms and improvements. Paired with the President's proposal, these tools could make a far greater impact in moving the country's economic and infrastructure forward."
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