WASHINGTON — Sen. Ron Wyden, D-Ore., wants to write a second chapter for the popular Build America Bond program, by reviving the federally subsidized taxable bonds to specifically fund transportation projects.
Speaking during a Senate Budget Committee hearing on the fiscal 2012 transportation budget, Wyden said he is working with Sen. John Thune, R-S.D., and talking to a number of other senators to try to “build a bipartisan coalition” of senators to support BABs for transportation.
The BAB program expired Dec. 31, almost two years after it was created by the American Recovery and Reinvestment Act. Roughly 2,352 BAB issues totaling $181.5 billion were sold during 2009 and 2010.
Wyden has already coined a new name for the BAB redux proposal: Transportation and Regional Infrastructure Project, or TRIP, bonds.
He told committee members that the political and economic climate is averse to tax increases for transportation spending, leaving few mechanisms available to finance projects. But BABs have proven successful in financing transportation development, he said.
Wyden estimated more than $50 billion of BABs — about a quarter of the all those issued — were used to finance transportation projects. That figure exceeded the $48 billion authorized for transportation projects in the ARRA, he said.
The BAB program allowed state and local governments to issue taxable bonds and receive federal subsidy payments equal to 35% of their interest rate costs. Wyden was a leading supporter of extending the program, even at a lower subsidy rate
But several Republicans opposed BABs, claiming they generated high underwriting fees for broker-dealers and encouraged issuers with lower credit to borrow more to get higher federal subsidies. BABs also came under fire by Republicans who broadly opposed stimulus programs.
Wyden said during the hearing that Thune “has been a wonderful partner” in building support for transportation-only BABs.
The Oregon Democrat said he hopes a narrower application of BABs can overcome GOP objections. He contends the concerns about underwriting fees have been resolved.
Wyden called on Transportation Secretary Ray LaHood, who was testifying before the committee, to convince the Obama administration to limit BABs to transportation.
LaHood said he will “work very hard” within the administration to get the BAB program revived for transportation spending. “Whether I can get there or not, I don’t know,” he said.
The president’s fiscal 2012 budget called for BABs to be permanently reinstated at a 28% subsidy rate, which administration officials said would make the program revenue-neutral. The White House proposed to broaden the program to allow BABs to be used to current refund previously issued BABs and to finance short-term working capital needs.
Jack Basso, director of program finance and management at the American Association of State Highway and Transportation Officials, said he has been working with Wyden’s staff on the specifics for the new BAB effort.
The bipartisan push behind the new BABs “has a lot more power” in its chances for becoming law, according to Basso.
Still, supporters have not yet determined a specific federal subsidy rate for the new bonds, he said, adding that it would have to be lower than 35%. Basso thinks the administration will have no problem getting behind the transportation-only BABs.
Despite the talk, there is currently no clear legislative vehicle for the proposed bonds, Basso said. He suggested the proposal could be added to legislation that will be needed this spring to raise the federal debt ceiling. Any debt-ceiling bill would be controlled by the tax committees, which traditionally have jurisdiction over bonds.
The call for a BAB revival has tentative support in the House as well. Transportation Committee chairman John Mica, R-Fla., has expressed interested in reinstating the bonds at a lower subsidy rate and said they could be included in a multi-year transportation reauthorization bill.