WASHINGTON — Deutsche Bank Trust Company Americas is urging the Internal Revenue Service to simplify and streamline the direct-pay Build America Bonds program by appointing it as a central administration agent for the program.
In a two-page letter dated Aug. 12 but not released until this week, the company told the IRS that there has not been as much interest as it expected in the BAB program and that hiring it to serve as a go-between for BAB issuers and the federal government may increase the number of muni issuers using the program by making it "more streamlined, transparent, and efficient." The letter was accompanied by an 11-page presentation outlining the company's vision for the post.
"When we started thinking about the BAB program, we thought it was a wonderful idea. It's been out there for a little while and we've seen some activity, [but] we think there could be more," Scott Thiel, director of public finance trust at Deutsche Bank Trust, said in an interview yesterday. "It just made sense to have a centralized agent in the middle providing a more efficient means to operate the program."
Though the IRS currently calculates the level of payment for BAB issuers, Deutsche Bank Trust would like to take over that responsibility. The administration agent would calculate both the interest payment amount and the rebate payment amount for each BAB issue, which would then be confirmed with the issuer and submitted to the IRS for verification and payment. Furthermore, the Treasury Department would simply submit one large, consolidated payment to the administration agent, which would disseminate the BAB subsidy payments to each issuer.
But unlike the current IRS-run program, in which the service mails a paper subsidy check to each issuer, Deutsche Bank Trust, as the administration agent, would disseminate the payments electronically and within a specified time frame. The IRS has stated that it wants to develop an electronic system for BAB payments, but has not moved forward with that yet.
Deutsche Bank Trust also would provide information to issuers interested in BABs, and would review the program forms submitted by issuers before passing them along to the IRS. Currently, BAB issuers must file Form 8038-CP with the IRS to request a subsidy payment, at which point the IRS verifies that the information in the form is accurate.
Deutsche Bank Trust assured the IRS that its role as administration agent would not present any conflicts of interest.
"While we are a major corporate trustee, we're not the eleven-ton gorilla in [the muni market]. The benefit is that in most of those deals where we would be the verification agent, we would not be the trustee eliminating any conflict," said Michael London, the head of corporate trust product development.
The company does not expect to hear from the IRS on its proposal until sometime next month, and IRS officials declined to comment on it yesterday.
Julia Cooper, deputy director of finance and debt manager for San Jose, said yesterday that the proposal is intriguing, but that she would prefer a competitive process for choosing the agent.
"I'm always a little apprehensive about doing things that haven't gone through some sort of competitive process to make sure you have vetted all of the issues," she said, adding, "On the face of it, it does have some merit, because we all know it takes forever to get anything in and out of the federal government."
Cooper pointed out that many state and local governments rely on private companies to disseminate interest payments on bonds and said that a program that ensures BAB payments are sent out on a consistent and timely basis would be attractive to issuers. San Jose has not issued any BABs to date, she said.