Treasurers’ Group Urges Congress To Extend Current BAB Subsidy Rate

WILLIAMSBURG, Va. — State treasurers voted Tuesday to urge Congress to extend the Build America Bond program at the current 35% subsidy rate, flouting those who warn lawmakers will only approve an extension at a reduced rate.

The resolution, approved during the National Association of State Treasurers annual conference here, does not include a time-frame for how long the program should exist. Some treasurers expressed concerns that a permanent extension of the federal program threatens states’ rights to issue tax-exempt debt.

“There has always been this underlying question about whether [BABs] have been a way of ending tax-exempt bonds,” said Nancy Kopp, treasurer of Maryland and chair of the NAST legislative committee, which wrote the BAB resolution. “That seemed to be of greater concern to some treasurers.”

The resolution states that the BAB program must not “provide a basis for termination of, or harm to, the tax-exempt status of municipal bonds.”

NAST took the action after Treasury assistant secretary Alan Krueger said Monday that BABs are not intended to eliminate the tax-exempt market, and that the program has demonstrated it “can function side by side” with tax-exempt bonds.

He also warned the BAB subsidy rate “is going to come down.” Any extension of the program will have to muster 60 votes to pass in the Senate, he said, adding that the Obama administration is committed to getting Congress to extend the program.

Treasurers agreed that a BAB extension at the 35% subsidy rate is a stretch, but said that the current rate has proven effective. The current 35% subsidy rate “is viable in the current economic environment and a lesser subsidy rate is not,” the resolution states.

James Lewis, NAST’s president and New Mexico treasurer, said that in ­meetings with White House staff, state treasurers supported a permanent extension to the BABs program.

If BABs “are in the toolbox now, we would like to see [BABs] out there for a permanent period of time,” he said. The resolution tries to “encourage” Congress to keep the subsidy rate at 35%, he said.

The treasurers also called for an advanced warning from the Internal Revenue Service if a state’s BAB subsidy is in danger of being offset because of money owed to the federal government.

States’ subsidy payments “are at risk of being intercepted for amounts owed the federal government totally unrelated” to the BAB program, the resolution states.

The resolution calls on the IRS to alert a state at least 45 days before its BAB subsidy is offset. At least one state, Maryland, has had its subsidy rate reduced as a result of money it owed to the federal government.

The resolution requests that the IRS also include in any offset notification the amount of the subsidy payment to be withheld, the type of payment owed to the federal government, and which state agency owes the payment.

Krueger had told the treasurers that muni bond issuers are given four to six weeks notice if the IRS detects a ­“seriously delinquent tax liability that triggers an ­offset.” Only seven of the 278 requested BAB payments by states and state entities have been reduced because of offsets, he said.

Additionally, NAST reaffirmed its positions for the Municipal Securities ­Rulemaking Board to add state treasurers to its board and against the repeal of the Tower Amendment. Tower was added to the ­Securities Exchange Act of 1934 to bar the MSRB and Securities and Exchange ­Commission from requiring issuers to ­submit documents to them before issuing securities. The treasurers said they should be on the MSRB “in order to make sure the governmental community is ­represented.” Both positions were initially approved in 2007 and were reaffirmed Tuesday.

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