Build America Bonds

Build America Bonds (BABs) are taxable municipal bonds that were authorized under the American Recovery and Reinvestment Act of 2009 (ARRA) that President Obama signed into law on February 17, 2009. BABs are an alternative to tax-exempt bonds for state and local governments that may be issued in 2009 and 2010. The interest on BABs is taxable to investors. As a result, the nominal interest rate on BABs is about the same as interest paid by non-state and local government borrowers, such as corporations. To make up for the benefit associated with the tax-exemption, the federal government provides two options to BAB issuers to lower their net interest costs.

With direct-pay BABs the Treasury Department provides borrowers with cash subsidy payments equal to 35 percent of their interest costs.

With tax-credit BABs, investors receive the right to a federal income tax credit equal to 35 percent of their BAB interest income. However, all BAB issuance to date has been direct pay.

BABs cannot be used for refundings, working capital, private activities or 501(c)(3) organizations.

Build America Bonds in the News, 2Q ’10

• Although the House of Representatives passed the amended H.R. 4213, the American Jobs and Closing Tax Loopholes Act of 2010, the bill has failed cloture vote in the U.S. Senate. The legislation, if passed as it currently stands, would extend the BABs program through 2010, albeit at a reduced subsidy (32 percent in 2011, 30 percent in 2012).

Taxable vs. Tax-Exempt Issuance, 2000 – 2Q ’10

BAB Issuance by Use of Proceeds, 2Q ’10

BAB Issuance as a Percentage of Total Long-Term Municipal Issuance, 2Q ’10

Negotiated vs. Competitive Deals, 2Q ’10

BAB Issuance, Years to Maturity, 2Q ’10

States by Number of Deals and Deal Size, 2Q ’10

15 Largest Deals, 2Q ’10

State Issuance by Month, 2Q ’10

Geographic Distribution, 2Q ’10

Note

• All 2Q data is from July 1, 2010 to June 30, 2010. All YTD data is 2010 data year to date ending June 30, 2010.
• Data Sources: Bloomberg, MSRB EMMA, Thomson Reuters, SIFMA

Credits

SIFMA Research

• Managing Director, Director of Research: Kyle Brandon
• Research Analyst: Sharon Sung

SIFMA Municipal Division

• Managing Director, Associate General Counsel, Co-Head: Leslie Norwood
• Managing Director, Co-Head: Michael Decker
• Policy Analyst (Advocacy): Lynne Funk