Major cuts in federal payments to issuers of Build America Bonds and other direct-pay bonds will have to be made if Congress is forced to make $1.2 trillion of across-the-board cuts  to the fiscal 2013 budget under the congressionally-mandated sequestration process, according to a report the Office of Management and Budget sent the lawmakers on Friday.

The cuts come after Obama administration officials assured muni market participants when the BAB program was created in February 2009, that the federal government would never make retroactive cuts to BAB payments, which muni issuers count on after they issue BABs.

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