Build America Bonds expansion needed-Geithner

February 2, 2010

WASHINGTON, Feb 2 (Reuters) – U.S. Treasury Secretary Timothy Geithner told a Senate panel on Tuesday that expanding the popular stimulus program known as “Build America Bonds” would help state and local governments at no cost to the federal government.

The taxable bonds, which give issuers a large federal rebate, have been a “remarkably effective program,” he said.

“It is one of the most effective per dollar of taxpayers’ money that we’ve seen out there. That’s a good case for making it permanent, but we think there’s also a good case to look at the scope of applicability,” he added.

In the budget President Barack Obama sent to the U.S. Congress on Monday, the program created in last year’s stimulus plan would become permanent and be expanded to include government refinancings and short-term operating costs.

“But we don’t have a monopoly of wisdom on this,” Geithner said. “We’d be happy to work with you to make sure that if we expand it, we’re not going to reduce its basic effectiveness.”

BABs, intended for infrastructure projects, helped revive the tax-exempt municipal bond market that states, cities and municipalities use to raise the funds needed to build schools, roads and hospitals. The market had been hit hard by the credit crisis and was all but frozen at the beginning of 2009.

“Because of this program… the cost of borrowing for state and local governments has come down very, very dramatically,” Geithner said. “State and local governments still face really, really difficult challenges that they haven’t seen in many decades.”

He added an expansion could help them tackle their swelling budget gaps. In the extended program, the federal rebate would drop from 35 percent to 28 percent.

However, Senator Ron Wyden, a Democrat from Oregon who helped design the program, questioned changing the bonds from their original intent of financing capital works construction.

“What concerns me is if the country goes that route, that won’t do as much to create new jobs, new family-wage jobs, particularly in transportation where there is the great economic multiplier as the original bipartisan proposal,” he said.

(Reporting by Lisa Lambert, Editing by Chizu Nomiyama) ((; +1-202-898-8328; Reuters Messaging: K

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