Financial Regulatory Forum

ANALYSIS-Build America Bonds bring “a game-changing moment”

By Lisa Lambert and Karen Pierog

WASHINGTON/CHICAGO, Feb 3 (Reuters) – The budget President Barack Obama proposed on Monday may revolutionize the $2.7 trillion U.S. municipal bond market by expanding a taxable bond program and changing how many states and cities finance daily operations and big projects.

“I think it’s a game-changing moment,” said Chris Mier, a muni market strategist at Loop Capital Markets in Chicago.

Obama proposed expanding and making permanent taxable Build America Bonds, which were created in the stimulus plan last year to finance infrastructure.

The bonds give issuers a federal rebate equal to 35 percent of interest costs, a subsidy so steep that state and local governments have rushed to sell $71 billion of BABs since they debuted in April.

The bonds helped revive the tax-exempt municipal bond market, which states, cities and municipalities tap to raise funds for schools, hospitals, roads and sewer systems. That market had stalled during the credit crisis and was all but frozen at the beginning of 2009.

Build America Bonds expansion needed-Geithner

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.