WASHINGTON — The American Public Power Association has adopted a resolution urging Congress and the administration to halt sequestration cuts to federal subsidy payments for Build America Bonds and new clean renewable energy bonds, warning they could total more than $2 billion over the roughly 11-year period they will be in place.
"These cuts are unfair, leave in question the cost of financing agreements entered into nearly five years ago, and threaten some of the economic benefits intended when Congress provided the direct-payment option for BABs and CREBs," the group said in its resolution.
Several muni market sources have said that these cuts, which are part of across-the-board reductions in spending known as sequestration that took effect after Congress failed to reduce the deficit, are a major obstacle to the reinstatement of BABs, New CREBs or any other direct-pay bond program.
Both President Obama and Senate Finance Committee chairman Sen. Ron Wyden, D-Ore., have called for the reinstatement of BABs or BAB-like bonds, even if at a lower subsidy rate. Obama's fiscal 2015 budget request would create direct-pay America Fast Forward bonds to "build upon the successful example of the [BAB] program."
BABs created by the American Recovery and Reinvestment Act of 2009 to help finance capital projects, are taxable bonds that were issued in 2009 and 2010. The Treasury Department was supposed to make subsidy payments to issuers equal to 35% of their interest costs, in lieu of the issuer paying tax-exempt interest to bondholders. About $182 billion of BABs were issued during the nearly two-year period.
Congress created New CREBs in the Energy Improvement and Extension Act of 2008 to be used by governmental bodies, public power providers and cooperative electric companies to help finance capital expenditures for qualified renewable energy facilities, including wind, hydroelectric, geothermal and solar projects.
In the Hiring Incentives to Restore Employment Act of 2010, Congress allowed New CREBs to be issued as direct-pay as well as traditional tax-credit bonds. The subsidy payments were supposed to be equal to the lesser of the interest payable on the bonds or 70% of the interest that would have been payable if it were determined at a specified credit rate.
The APPA said Congress tried to shelter BABs and New CREBs subsidy payments from annual appropriations battles by providing permanent appropriations. Nevertheless, the subsidy payments have been subject to sequestration. BAB and New CREB subsidy payments were cut 8.7% between March 1 and Sept. 30 of 2013. They are being cut by 7.2% in fiscal 2014, from Oct. 1, 2013 through Sept. 30, 2014. The cuts are to continue through 2024.
"The [APPA] opposes federal sequestration of credit payments to [BAB] and {New CREB] issuers," the group said in its resolution. "The APPA urges the administration and Congress to take such steps as are necessary to prevent sequestration of BAB and New CREB credit payments to issuers."
