Rep. Gerald Connolly, D-Va., has introduced a bill that would reinstate the Build America Bond program for two years at federal subsidy payment rates of 32% this year and 31% in 2012.
But the legislation faces an uphill battle in Congress where a number of Republicans, including House Ways and Means Committee chairman Rep. Dave Camp of Michigan, oppose BABs.
The Democrats tried but failed on Thursday to force a vote on the Connolly measure, which they called a job-creation bill.
Meanwhile, the House was considering HR 72, which directs committees to review existing, pending, and proposed federal regulations and orders, particularly with respect to their effect on jobs and economic growth.
“The [BAB] program created tens of thousands of jobs before it expired on Dec. 31, Connolly said when he introduced the bill on Thursday. “And it can create many more if this legislation is enacted.”
House Transportation Committee chairman John Mica, R-Fla., has said he is exploring putting provisions to reinstate the BAB program in the multi-year surface transportation bill he plans to introduce later this year, but has not committed to it.
The BAB program was authorized by the American Recovery and Reinvestment Act in early 2009 as a two-year program and expired on Dec. 31.
BABs allowed state and local governments to issue taxable bonds and receive federal subsidy payments from the federal government equal to 35% of their interest costs.
Though municipal bond market participants initially were suspicious that BABs were an attempt to push state and local governments into the taxable market so that they would issue less tax-exempt debt, BABs became wildly popular because of the rich federal subsidy rate.
At least 2,352 Build America Bonds totaling $181.49 billion were issued in 2009 and 2010, according to Thomson Reuters.
The Obama administration proposed making the program permanent, with a 28% federal subsidy payment rate, in its fiscal 2011 budget request.
But Sen. Chuck Grassley from Iowa, the ranking minority member of the Senate Finance Committee, and other Republicans criticized the program for generating high underwriting fees for investment banks and rewarding issuers with poor credit by providing them with higher subsidy payments from the federal government.
Before becoming chairman of the House Ways and Means Committee, Camp called BABs “a heavily subsidized spending program.” And Sen. Jon Kyl, R-Ariz., the minority whip and top Senate GOP negotiator for the tax law enacted late last year, kept BABs and most other ARRA bond stimulus provisions out of that tax law, sources said.
Municipal market participants applauded the Connolly bill yesterday.
“We welcome Congressman Connolly’s legislation,” said Michael Decker, managing director and co-head of the municipal securities group at the Securities Industry and Financial Markets Association. “BABs provided essential support for state and local governments over the last two years and, if reinstated, would help stabilize the municipal bond market and encourage job-creating public investment. We urge Congress to act quickly on Rep. Connolly’s bill.”
Mike Nicholas, chief executive officer of Bond Dealers of America, said: ”BDA recognizes liquidity concerns in the market and generally supports an extension of BABs at a more revenue-neutral rate that still provides needed benefits to municipal issuers and is beneficial to the marketplace, particularly at the lower end of investment-grade market.”
But BAB fans acknowledge that the legislation may be a long shot.
“We support it. It’s a financing option at a time when our members are facing many challenges,” said Michael Belarmino, associate legislative director at the National Association of Counties. “But I think it’s going to have an uphill battle.”
Connolly’s bill, which would permit BABs to be used to current-refund previously issued BABs, has been referred to the House Ways and Means Committee.
