Rep. Richard Neal, D-Mass. is planning to unveil an “aggressive” tax reform and infrastructure bill at the end of September that would reinstate the Build America Bond program and other direct-pay tax-credit bonds.
“I’m going to go big,” Neal told The Bond Buyer after a tax reform event hosted by the Aspen Institute on Wednesday.
Neal, who serves on the House Ways and Means Committee and is a big proponent of preserving tax exemption, said his proposal will be a “pro-growth strategy.”
“You cannot do physical improvements at the local level without tax-exempt bonding,” Neal said. “The evidence was so overwhelming that it worked, I think it’s the kind of issue that we need to get back to.”
The BABs program was created in February 2009 under the American Recovery and Reinvestment Act but expired at the end of 2010. Issuers sold more than $181 billion of BABs and received subsidy payments from the federal government equal to 35% of their interest costs.
This isn’t the first time the former Springfield, Mass., mayor has introduced legislation to permanently extend BABs. In February, Neal introduced the Build America Bonds Act of 2013 (HR 789). That bill, which has 14 cosponsors, would make BABs permanent at a 32% subsidy rate and gradually reduce that rate by 1% each year until a permanent 28% rate was reached in 2017. The Obama administration has estimated a 28% rate would be revenue neutral.
Neal introduced the Build America Bonds Act, (HR 6206), in July 2012 to help state and local governments finance capital projects including schools and transportation infrastructure. That subsidy rate was the same as proposed in the other bill.
He also proposed the Building American Jobs Act of 2011, which garnered 21 cosponsors. That bill extended BABs for one year and eased restrictions for private-activity bonds.
It’s unclear what the subsidy interest rate would be for Neal’s new proposal. He and his staff are still shaping it, but are determined to figure out a way to move a BAB program forward. Neal also said his proposal will be offset by “a pay for,” but didn’t specify what that would be.
“This conversation about debt financing, if you take away that incentive it will freeze any sort of municipal improvements or statewide improvements,” Neal said.
President Obama has sought to revive the BAB program several times. In his fiscal 2014 budget request in March, Obama proposed America Fast Forward bonds to be used for any project that can currently be financed with tax-exempt private-activity bonds.
The muni market welcomed Obama’s proposal, but most Republicans are opposed to any proposals to reinstate BABs, claiming direct-pay bonds encourage states with low credit ratings to borrow and provide huge fees to underwriting firms.
When asked why a renewed push for a BAB program would gain traction this time around Neal said, “because it worked.”