Senators To Seek Build America Bonds For Transportation
First Published Tuesday, 15th March 2011 05:52 pm - © 2011 Dow Jones
By Andrew Ackerman
Of Dow Jones NEWSWIRES
WASHINGTON -(Dow Jones)- Senators are weighing legislation that would create a scaled-down version of the politically controversial Build America Bonds program as a way to encourage public-private partnerships for highways, ports and other infrastructure projects.
Sen. Ron Wyden (D., Ore.) plans to soon introduce legislation that would create a Build America Bond-like program but would limit overall issuance to $50 billion as well as restrict proceeds from the bond sales to transportation and infrastructure.
The five-year bonding program, which would be called Transportation and Regional Infrastructure Projects, or TRIPs, is expected to have bipartisan support, according to Jennifer Hoelzer, Wyden's deputy chief of staff.
Build America Bonds were created in the 2009 stimulus law and allowed states to receive a subsidy payment equal to 35% of the interest costs of their bonds.
The program, which had no annual caps, expired at the end of 2010 after states and localities sold about $186 billion of the bonds, far more than the federal government originally expected.
Republicans objected to renewing Build America Bonds at the end of last year, partly out of concern that the program encouraged the federal government to subsidize a large number of projects primarily in New York and California that would not have otherwise been financed.
To counter those concerns, Wyden's TRIPs bill would create a Transportation Funding Corp. to allocate the $50 billion TRIPs cap among the states, with at least 1%, or $500 million, allocated to each state.
"This isn't a big new bureaucracy, just an independent authority that will make sure that each state gets a portion of the funding and that states aren't using the funds for non-transportation budget items," Hoelzer said.
Rather than carry a fixed subsidy rate, TRIPs' subsidy rate would be based on a daily index maintained by the Treasury Department. The subsidy also would flow to the investor, not the issuer or borrower.
At a hearing earlier this month, Wyden referenced TRIPs and said he was working with Sen. John Thune (R., S.D.) on the proposal. A spokesman for Thune did not respond to requests for comment Monday.
Wyden's proposal would come just after fellow Democrat Sen. John Kerry of Massachusetts introduced a bill Tuesday to create a $10 billion infrastructure bank. The bank proposal has the support of Sen. Kay Bailey Hutchison (R., Texas) and the U.S. Chamber of Commerce.
Both Wyden's forthcoming bill and the infrastructure bank bill are expected to face an uphill political battle.
Supporters of Build America Bonds failed to convince Republican lawmakers to agree to extend the program last year, despite enormous pressure by state and local groups as well as banks that underwrite the bonds.
Meanwhile, the infrastructure bank idea has failed to gain traction despite support by prominent lawmakers over the years, including former Senate Banking Committee chairman Christopher Dodd (D., Conn.). Lawmakers have been reluctant to establish an independent bank outside of the control of annual appropriators, congressional sources have said.
However, Wyden's idea to renew Build America Bonds with what are known as taxable tax credits appears to reflect the general direction of federal policymakers.
For instance, the Congressional Budget Office released a report this week that said the federal government could save up to $143 billion over 10 years by killing the tax-exempt municipal market and switching to a market in which states and localities sold taxable bonds but received a federal tax credit or subsidy equal to 15% of their issuance costs. Such tax credits are believed to be more efficient subsidies.
However, taxable tax credits have failed to take off in the past when authorized in tax legislation, market participants noted.
"In the past, they haven't been a scalable way for states and localities to borrow," said Matt Fabian, managing director at Municipal Market Advisers.
-By Andrew Ackerman, Dow Jones Newswires; 202-569-8390; firstname.lastname@example.org