The “Put America Back to Work Act,” which was introduced last Wednesday, would reduce the subsidy rate the Treasury Department pays issuers to 25% of their interest costs, from the original 35%.
The bill has been referred to the House Ways and Means Committee, but it’s unclear if it will garner significant support or be eventually attached to some tax or other legislative vehicle.
Connolly introduced BAB legislation in February 2011. That bill would have reinstated BABs through 2012, at subsidy rates of 32% in 2011 and 31% in 2012.
The BAB program was created in 2009 under the American Recovery and Reinvestment Act, but it expired at the end of 2010. A total of $181 billion of BABs were issued during that time.
Since BABs expired, President Obama and a handful of Democrats have unsuccessfully proposed extending or making permanent the program at subsidy rates lower than the initial one of 35%, but until now 28% was the lowest rate.
Resurrecting BABs has been a hard sell to Republicans, who have complained the program is not revenue neutral, creates lucrative fees for underwriters, and encourages lower-rated states like California to issue more bonds because their rate interest costs are high and, as a result, they get higher subsidy payments.
House Ways and Means Chairman Rep. Dave Camp, R-Mich., called BABs “a heavily subsidized spending program” in 2010.
Connolly’s office hopes that the lower subsidy rate will help generate more support for BABs, among Republicans as well as Democrats.
“It’s not a silver bullet or anything but it’s additional relief for lower rated jurisdictions,” a source said about Connolly’s bill. The measure would provide broader market access to A- and B-rated credits, he said, noting AAA credits typically have no trouble selling bonds.
Unlike his previous proposals, Connolly’s new bill would allow BABs to be used for additional purposes. The bill would allow BABs to be current refunded and would expand their use for 501(c)(3) non-profit organizations, working capital, and capital expenditures for levees and flood control projects.
In the past at least six other lawmakers have unsuccessfully sponsored BAB legislation.
Last July Rep. Richard Neal, D-Mass., a member of the House Ways and Means Committee, introduced a bill (HR 6202) that proposed making BABs permanent at rates starting at 32% in 2012 and lowering each year to 28% in 2016.
Before that President Obama’s fiscal 2013 budget request proposed making the BAB program permanent at a 28% rate.
In November 2011, Sen. Kirsten Gillibrand, D-N.Y. sponsored a bill (S 1895) to extend the BABs program through 2012, with reduced subsidy payments.
In March 2011, Rep. Sandy Levin from Michigan, the top Democrat on the House Ways and Means committee, introduced a bill that would also have extended the BABs program through 2012 at lower subsidy rates.
Reps. Laura Richardson and Adam Schiff, both California Democrats, offered similar bills in February 2011.