U.S. Congress closer to extending Build America Bonds

* Bill extends BABs for two years, drops subsidy

* Changes Recovery Zone bonds allocations

* Continues other stimulus muni measures

WASHINGTON, May 20 (BestGrowthStock) – Congressional leaders will
introduce a bill on Thursday to extend the U.S. stimulus plan’s Build America Bond program while gradually lowering the
federal subsidy paid to those who sell the popular debt.

The taxable Build America Bonds were created in the
stimulus plan passed last year and pay issuers a federal rebate
of 35 percent. The program is set to expire along with the
stimulus at the end of the year. Leaders in the U.S. House of
Representatives and Senate say it should be extended to keep
credit flowing to financially struggling states and cities.

The bill, written by Senate Finance Committee Chairman Max
Baucus and House Ways and Means Committee Chairman Sander
Levin, would extend Build America Bonds by two years but lower
the subsidy to 30 percent, according to a summary released
early on Thursday.

The legislation also extends unemployment and other
benefits for millions of Americans, and faces hurdles in
Congress, given its size and controversial provisions.

President Barack Obama had suggested in his proposed budget
making the BABs program permanent, but lowering the subsidy to
28 percent. Last month, Levin told Reuters a permanent program
would be too expensive.

The legislation is the closest step yet for keeping BABs
alive, just as the debt grows more popular with foreign buyers
and with issuers. A total of $102 billion of the bonds have
been sold so far, financing infrastructure projects across the
nation.

BABs represent 20.5 percent of new issues in the municipal
bond market and have largely been credited with breaking a
freeze that spread through the market at the end of 2008.

According to the summary, the BABs extension would likely
cost the federal government $4.042 billion over 10 years.

The legislation would also extend other stimulus provisions
related to the municipal bond market that were designed to help
states and cities cope with the longest and deepest economic
recession since the end of World War Two.

It would extend the Recovery Zone bond program that
functions similarly to BABs but offers a steeper rebate of 45
percent.

The bonds were intended to alleviate the stress of
unemployment in areas where joblessness is high. The formula
for allocating the bond issuance to local governments proved
cumbersome and cities and counties have been racing to try to
meet the requirements before the stimulus ends.

Under the bill, the formula would change to consider
unemployment rates instead of net job losses and the
allocations would increase. The program would also continue
through 2011.

The legislation would continue to exclude private activity
bonds, or those sold for projects that fall outside the bounds
of typical civic activities, from calculations of an
individual’s alternative minimum tax through 2011.

It would also eliminate bonds for water and sewers from the
volume caps imposed on states for private activity bonds.

The stimulus redefined a small bond issuer as one who
issues $30 million in tax-exempt debt from one who sells $10
million in bonds annually. That allowed more issuers to qualify
for an exception in the tax law that allows financial
institutions to buy tax-exempt debt and deduct a portion of the
interest. Thursday’s bill would also extend this through 2011.

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(Reporting by Lisa Lambert, additional reporting by Kim
Dixon; Editing by Andrew Hay)

U.S. Congress closer to extending Build America Bonds