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Obama Proposes Permanent, Expanded BAB Program At Lower Rate

FEB 14, 2011 11:03am ET
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WASHINGTON — President Obama’s fiscal 2012 budget proposal would make permanent an expanded version of the Build America Bond program at a 28% subsidy payment rate, simplify arbitrage restrictions, increase the small issuer exception from rebate requirements to $10 million from $5 million and index it for inflation, as well as streamline private business limits on governmental bonds.

The BAB program would be expanded in that BABs could be used for all purposes for which tax-exempt bonds can currently be used. Before expiring on Dec. 31, BABs could only be used to finance capital expenditures and the federal subsidy payment rate was 35%.

The arbitrage rebate restrictions would be simplified in that most yield restriction requirements would be repealed and a broad three-year spending exception would allow most issuers to be exempt from rebate requirements. For private-activity bonds, the administration would repeal the 5% unrelated or disproportionate private business limit test, but leave the 10% private use and payments tests.

Obama also is proposing a $556 billion surface transportation reauthorization bill that would expand the current Highway Trust fund to a Transportation Trust Fund that accounts for newly incorporated activities.

He would provide $30 billion over six years to fund a national infrastructure bank, and $8 billion as part of an overall $53 billion six-year program to create a high-speed rail and passenger rail network.

However, the president is proposing to reduce funding for clean and wastewater state revolving funds as well as for the community block development grant program.

The fiscal 2012 budget request also calls for reforming and expanding the low-income tax credit as well as restructuring assistance to New York City for transportation infrastructure.

Obama faces an uphill battle in trying to push many of these proposals through Congress. Many Republican lawmakers have opposed the BAB program, particularly House Ways and Means Committee chairman Dave Camp, R-Mich., and they are critical of spending so much on high-speed rail. 

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New York's budget leaves it at risk of becoming one of only five states that do not allow the use of design-build procurement to deliver public infrastructure projects.

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