House Bill Offers Bond Boost

WASHINGTON — The House yesterday approved a revised jobs bill that would allow issuers selling four types of tax-credit bonds to receive a direct Build America Bond-style subsidy payment from the federal government at a far higher rate than was proposed in the Senate version of the bill.

The modified bill is “terrific,” said Michael Decker, managing director and co-head of the muni division of the Securities Industry and Financial Markets Association. “It means that those products will actually be able to be used, because right now they’re not nearly being used to the extent that Congress intended.”

Meanwhile, in an outline of the bill, House Speaker Nancy Pelosi, D-Calif., said the House will “act later to expand” the BAB program, marking the first time a congressional leader has made that promise. President Obama asked for the BAB program to be made permanent in his fiscal 2011 budget request.

The House voted 217 to 201 to pass the jobs bill and the Senate must now approve it. The bill combines the high subsidy rate offered in the original House bill with the broader reach of the Senate version, which would apply the BAB-style subsidies to four tax-credit bond programs, instead of two as the House had proposed.

It also would extend surface transportation programs through the end of the year, providing states and metropolitan areas with federal aid while Congress develops a new multi-year authorization bill, and would give the programs more funding.

Under the legislation, qualified school construction bonds, qualified zone academy bonds, new clean renewable energy bonds, and qualified energy conservation bonds could be issued as direct-pay bonds similar to BABs. The payment rate for the bonds would closely approximate their current tax-credit rate.

Currently QSCBs and QZABs provide investors with tax credits of roughly 100% of interest costs. CREBs and QECBs offer credits roughly equal to 70% of interest costs. Under the programs, the Treasury Department determines a daily tax-credit rate based on taxable bonds with ratings ranging from single-A to triple-B from various market sectors.

For QSCBs and QZABs, the jobs bill would require the Treasury to give issuers direct payments equal to the lesser of the actual interest rate of the bonds or the daily credit rate for municipal tax-credit bonds. For CREBs and QECBs, the Treasury would have to give issuers payments roughly equal to 70% of interest costs.

Both of those rates exceed the ones that were in the Senate bill, which came under fire from muni market participants for providing no incentive for issuers to issue tax-credit bonds as BABs.

Under the Senate bill, large issuers would have received a subsidy rate of 45% of interest costs and small issuers would have received a 65% rate. The bill defined small issuers as those that sell less than $30 million of bonds in the calendar year.

Market participants had said issuers would not opt to issue the bonds as BABs if it meant practically halving the amount of the subsidy they could receive, and threw their support behind the House’s version of the bill with the far richer subsidy.

The bill also would extend surface transportation programs through the end of the year and would provide enough funding to pay for the programs during that period. It would allow the highway trust fund to earn interest on its balance and provides an extra $19.5 billion to the fund, which is composed of revenue from gasoline and other vehicle-related taxes. The fund provides daily and weekly reimbursements to help transportation agencies pay for their construction projects.

In addition, the bill would restore $8.7 billion of spending ability that was pulled from states in the fall.

Transportation Secretary Ray LaHood said during a Senate Appropriations Committee hearing yesterday that the Senate jobs bill “is an enormous help for the states.”

House Transportation and Infrastructure Committee chairman James Oberstar, D-Minn., and others in Congress protested a provision in the Senate bill that would allocate almost $1 billion of highway funds according to 2009 earmarks and stop seven highway programs from receiving bonus formula funds for transportation.

However, Oberstar said yesterday that Senate Majority Leader Harry Reid, D-Nev., has provided written assurance that his concerns will be addressed in legislation scheduled for Senate consideration soon.

“This is a $15 billion bill, but it … triggers tens of billions of dollars more” by transferring general funds to the highway fund to make up for foregone interest and other provisions, Pelosi said during debate on the bill.

Meanwhile, Rep. Sander Levin, D-Mich., was named acting chairman of the House Ways and Means Committee yesterday after Rep. Fortney Pete Stark, D-Calif., said he would not fill the post. Rep. Charles Rangel, D-N.Y., on Wednesday said he was taking “a leave of absence” as chairman as some of his closest supporters appeared to pull back amid ongoing ethics charges.

Levin is the next most senior Democrat to Stark on the tax-writing committee.

Stark, 78, was officially in line for the spot, but sources said he would not likely be made chairman because he would not be good at building consensus among committee members.

Rangel said he did not want to be a burden for Democrats facing re-election while he battles a number of ethics allegations, including a failure to report $75,000 in income for federal taxes. While he characterized the move as temporary, many doubt he will be able to return given the challenges facing him.

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