WASHINGTON — Sen. Chuck Grassley, the ranking minority member of the Senate Finance Committee, has asked the Government Accountability Office to analyze Build America Bonds and determine who primarily benefits from the program, whether states are using the bonds to reduce budget deficits, and what federal agencies are finding in probes of BAB transactions.

The Iowa Republican made the request in a three-page letter sent Tuesday to acting Comptroller General Gene Dodaro as Senate Finance Committee chairman Max Baucus, D-Mont., reportedly told fellow Democrats on the panel that he is considering writing a tax bill that would extend the BABs program through the end of 2011.

“Some members of Congress are very enthusiastic about continuing and even expanding these bonds, but there’s been very little transparency about this program, including where the money goes,” Grassley said in a press release. “Most of the quantitative information that we have is from media reports or outside groups, not an official source. Congress’ investigative arm is a neutral third party that should take a look and account for how tax dollars are used, which parts of the country benefit from this program, and whether these bonds are any more or less effective than traditional municipal bonds.”

Grassley has had long-standing concerns about BABs, which he claims cost the federal government more revenue than do traditional tax-exempt municipal bonds.

BABs are taxable securities and issuers of the bonds receive subsidy payments from the federal government equal to 35% of interest costs. The two-year program was created by the American Recovery and Reinvestment Act in February 2009 to expand the market for municipal securities. It is set to expire on Dec. 31.

Grassley also claims that state and local governments that have been less fiscally responsible and have lower credit ratings get bigger federal checks under the BAB program than do issuers that are more responsible and have better ratings. Reports have indicated that about one third of the money for BAB-financed projects flows to California and New York.

“If that’s the case, the program might be better named the Build California and New York Bonds program,” he said.

Grassley and some of his fellow Republicans also claim BABs contribute to the size of an already-bloated federal government.

“Build America Bonds is a disguised spending program run through the tax code,” he said. “And taxpayers deserve to know where the money is going. Wall Street banks are in business to make money. They lobbied for this program and are now lobbying for an extension of what was originally pitched as a temporary program.”

In his letter, Grassley asked the GAO for a comprehensive list of all projects funded with BABs, including the interest rates on the bonds and the fees paid to underwriters. He asked the agency to compare the underwriting fees for BABs with those for municipal bonds and to determine how BABs have affected the volume of munis.

He wants the GAO to provide an update of SEC probes of BABs and to conduct a review of actions the Internal Revenue Service has taken or is planning to take regarding BABs, as well as “ an analysis of any instances of fraud, waste or abuse that may have been observed” or that may be possible because of loopholes in the law.

An earlier GAO report suggested the IRS take steps to increase transparency and reduce the potential for fraud with regard to BABs, and Grassley has asked what the IRS has done with regard to those issues.

Through the end of October, municipal bond volume continued to reflect the theme of decreasing tax-exempt issuance as BAB issuance has increased. State and local governments borrowed $11.2 billion last month through the BAB program — the third-largest monthly total in its 19-month history, according to data from Thomson Reuters.

Tax-exempt issuance totaled $25.7 billion in October, or 15% less than the same month in 2009.

The contribution from BABs helped taxable issuance account for $15.9 billion of volume last month, or 38% of all new issuance.

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