WASHINGTON — Leaders of the Senate Finance Committee yesterday unveiled a draft of bipartisan jobs legislation that would “BABify” four tax-credit bond programs by allowing issuers to receive Build America Bond-type direct payments instead of providing investors with tax credits.
Qualified school construction bonds, qualified zone academy bonds, qualified energy conservation bonds, and new clean renewable energy bonds could all be issued as direct-payment bonds under the 361-page draft bill. The measure also would extend a number of tax provisions that either have already expired or would soon expire.
The bill also would extend the current surface transportation law through the end of this calendar year and transfer $19.5 billion of general funds into the highway trust fund.
Committee chairman Max Baucus, D-Mont., and ranking minority member Sen. Charles Grassley, R-Iowa, released the draft yesterday, issuing a joint statement that said: “The draft contains proposals we would expect to be included in an initial bill. We offer it as the first step in the Senate process for consideration of these time-sensitive proposals.”
A spokesman for President Obama applauded the action, saying: “The president looks forward to working with members from both parties on this bill and on the additional job-creation measures he has identified, including incentives for energy-efficiency investments and increased access to credit for small businesses.”
Under the tax-credit bond proposal, large issuers would receive a subsidy rate of 45% of interest costs and small issuers would receive a rate of 65% of interest costs. The draft defines small issuers as those that sell less than $30 million of bonds in the calendar year.
That proposal would provide a smaller subsidy than one found in the jobs bill the House passed in December. That bill, which would only “BABify” QSCBs and QZABs, would provide subsidy payments roughly equivalent to the credit rate on the bonds, with the goal of the credits equaling 100% of interest costs.
Sen. Ron Wyden, D-Ore., yesterday was jubilant about the BAB provisions in the draft, which he said would be “a huge economic multiplier” and would continue a program that “helped to unfreeze the municipal bond market.”
The bond provisions contained in the draft appear to mirror those found in an earlier document that was widely circulated among lobbyists on Tuesday. However, Senate Majority Leader Harry Reid, D-Nev., told reporters yesterday that he plans to immediately move forward with a smaller measure that includes the BAB provisions, the extension of transportation legislation, and two jobs initiatives.
“Extenders” would come later, he said, adding that the Senate could not take up the jobs bill for a vote now with so many members out because of the severe winter weather.
The extenders, in a future bill, would mirror those from a bill passed by the House in December. One would extend New York City’s Liberty Zone bond program for another 12 months, through the end of the year. That program, which was created to drive economic development in lower Manhattan following the terrorist attacks of Sept. 11, 2001, allows local issuers to sell Liberty bonds, a special type of private-activity bonds.
Another would extend through 2010 relaxed mortgage-revenue bond limitations for federal disaster areas, under which issuers in designated locations could issue tax-exempt housing bonds to finance the repair or reconstruction of homes or rental housing units that have been damaged or destroyed by a federally declared disaster. And a third would extend through 2010 the ability of taxpayers to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction typically permitted for state and local income taxes.
An additional provision would extend by one year the tax incentives for the District of Columbia empowerment zones, which are economically distressed areas where businesses are eligible for tax incentives, including tax-exempt bonds, to spur development. Tax-exempt bonds could be issued in the areas to provide low-cost financing to private businesses, provided that at least 35% of the business’ employees are residents of the empowerment zone for the life of the bonds.
The jobs bill would take care of several requests from the transportation sector. It would extend the Safe, Accountable, Flexible, Efficient Transportation Equity Act: a Legacy for Users, or SAFETEA-LU, through the end of this calendar year. The programs under SAFETEA-LU have been kept afloat by short-term extensions since Sept. 30, 2009. Reid said the extension would save one million jobs.
It also would transfer $19.5 billion of general funds into the highway trust fund — $14.7 billion for highways, $4.8 billion for transit — based on the idea that the amount would make up for interest the fund has lost due to a ban on its interest-earning ability. The draft also would repeal that ban and reverse a recent mandatory rescission that took away state transportation departments’ ability to obligate $8.7 billion of unused funds.
By transferring nearly $20 billion into the trust fund, the draft would ensure the fund does not run out of money this year as predicted. The fund has run dangerously close to a zero balance during the past two years.
Highway programs would be able to obligate a total of $53.1 billion between Oct. 1, 2009, and Dec. 31, 2010 — about $10.6 billion of which would be available from Oct. 1 through Dec. 31 of this year.
The American Association of State Highway and Transportation Officials has been pushing for transportation infrastructure funds in the jobs bill, arguing that construction would spur employment and prevent job losses.
The group this week said American Recovery and Reinvestment Act funding for transportation created or sustained more than 280,000 highway and transit jobs. State transportation departments are taking or have taken bids on 77% of their ARRA funding, and the projects that are currently under construction total $20.6 billion.
But there are potential roadblocks to the transportation portions of the bill. Objections could be raised against reversing the $8.7 billion rescission, because that provision would affect this fiscal year, for which a budget already has been already set.
Even pro-transportation lawmakers could ultimately decide against the bill if they oppose spending levels or other provisions in it, sources said.
Market participants worry that Republicans will block the $19.5 billion transfer, which if the programs are extended would require Congress to scramble to find another funding source to keep the programs running at current levels.