Treasury Touts BABs, But at What Cost?

WASHINGTON — Treasury Department officials yesterday touted Build America Bonds as one of the American Recovery and Reinvestment Act’s success stories and a driver of public and private investment, but could not quantify exactly how much the program is costing the federal government.

Alan Krueger, the Treasury’s assistant secretary for economic policy, said the department has not re-calculated the costs beyond the original scoring done by the Joint Committee on Taxation when the program was included in stimulus legislation at the beginning of the year.

“It’s not an easy thing to calculate,” he said. “There’s a lot of parts that are relevant to it.”

The JCT predicted the program would cost $51 million in 2009, $292 million in 2010, and about $4 billion over 10 years. But it did not account for potential increases in revenue from taxes collected from BAB investors.

But on an annualized basis, The Bond Buyer calculated that the 35% subsidy owed by the federal government to issuers of the more then $54.5 billion in BABs sold so far this year could total $1.2 billion, based on the average coupon of 6.31% on the BABs in the Wells Fargo BAB index.

The bonds in the index have an average maturity of 28.4 years. Similar to the JCT’s estimate, this calculation does not account for potential tax revenues gained from taxable BAB investors.

But regardless of the cost, Krueger said BABs have infused billions of dollars into the private sector.

Illinois, which has issued $2.8 billion of BABs, expects 80% of the proceeds will go to hiring private contractors and developers for its projects, while Ohio expects 90% of the proceeds on the $890 million it has issued thus far will be used to pay private workers, Krueger said.

The BAB program is an example of a program “generating real private bang for the public buck,” said Jared Bernstein, the chief economist for Vice President Joe Biden.

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