ABA Conference Speaker Will Ask If BABs Are an Addiction

A law school professor scheduled to speak during an American Bar Association teleconference today will question whether the Obama administration and Congress are attempting to "addict" the municipal market to taxable Build America Bonds.

Stanley I. Langbein, a professor at the University of Miami School of Law, will raise the question during a teleconference hosted by the ABA's sections on taxation and state and local government law.

He will be joined by John Buckley, the House Ways and Means Committee's chief tax counsel, and John J. Cross 3d, the Treasury's associate tax legislative counsel, along with several lawyers in the public finance sector: Gary Bornholdt with Nixon Peabody LLP, Laura Ellen Jones, a partner at Hunton & Williams, and Jeremy Spector, a partner at Mintz Levin Cohn Ferris Glovsky and Popeo PC and president of the ABA's tax exempt financing committee.

Although the conference is supposed to focus on the wide array of financing options available to issuers for renewable energy projects, including several types of tax-credit bonds, Spector said yesterday he expects it will cover other issues in the muni market as well.

"We're going to set the table with ... an overview of the various types of municipal bond financing vehicles available for energy projects," he said, adding that he will be inviting Buckley and Cross to "crystal ball" the future of public finance.

Bornholdt is expected to provide an overview of the various types of bond financing that can be use for energy projects, while Jones will outline additional tax incentives that could be used to supplement bond financing on such projects, like tax credits or federal grants.

Lining up financing is crucial for renewable energy projects, Spector noted.

"The critical point here is: without the financing, in many cases you can't do the project at all," he said. "Financing is critical, and there's a menu of choices available to issuers today."

Meanwhile, Buckley, who has helped foster the expansion of tax-credit bonds in recent years, will discuss the history of those bonds and BABs in the context of congressional policy.

Although Langbein and some market participants have aired concerns about whether tax-credit bonds and BABs are potential threats to the traditional tax-exempt bond market, Buckley has maintained that the programs should not be seen as a threat, only as a supplemental financing option for state and local governments.

Langbein will discuss various tax policy issues, including the allure and potential pitfalls of BABs, and what they might mean for municipal finance. According to an outline of his remarks, Langbein plans to discuss exactly how BABs came to be in the American Recovery and Reinvestment Act.

Although the idea of permitting municipalities to issue taxable debt is not new, it is unclear exactly how the program made its way into the ARRA, he said, and the swiftness with which the measure was enacted into law left market participants with little or no chance to discuss the program before it was authorized.

He also will question whether the tax-exempt market could "wither" as a result of tax-credit bond programs and BABs.

Langbein's also may make the case that if the BAB program is extended, it is inevitable that the current 35% subsidy level, which he claims is unsustainable, will be reduced for future deals.

The subsidy level is proving much costlier than expected for the federal government, and Treasury officials have noted in the past that an advantage of BABs is that the subsidy level can be modified if needed.

Cross will close out the conference by discussing the Treasury's tax policy as the department tackles the complex issues facing municipal finance, the number of which has only grown with the recession and passage of the ARRA.

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