bring back babs: a proposal to strengthen the municipal bond market with build america bonds

8/7/2019 Bring Back BABs: A Proposal to Strengthen the Municipal Bond Market with Build America Bonds

1/30www.amer icanprogress .o rg

Bring Back BABsA Proposal to Strengthen the Municipal Bond Marketwith Build America Bonds

Jordan Eizenga and Seth Hanlon April 2011


2/30


3/30

Bring Back BABsA Proposal to Strengthen the Municipal Bond Marketwith Build America Bonds

Jordan Eizenga and Seth Hanlon April 2011

CAPs Doing What Works project promotes government re orm to e ciently allocate scarce resources andachieve greater results or the American people. This project speci cally has three key objectives:

Eliminating or redesigning misguided spending programs and tax expenditures, ocused on priority areas

such as health care, energy, and education Boosting government productivity by streamlining management and strengthening operations in the areas

o human resources, in ormation technology, and procurement Building a oundation or smarter decision-making by enhancing transparency and per ormance

measurement and evaluation

This paper is one in a series o reports examining government accountability and e ciency.


4/30

Doing What Works Advisory Board

Andres AlonsoCEO, Baltimore Public School System

Yigal ArensPro essor, USC School o Engineering

Ian AyresPro essor, Yale Law School

Gary D. BassExecutive Director, OMB Watch

Larisa BensonWashington State Director o Per ormanceAudit and Review

Anna BurgerSecretary-Treasurer, SEIU

Jack DangermondPresident, ESRI

Beverly HallSuperintendent, Atlanta Public Schools

Elaine Kamarck Lecturer in Public Policy, Harvard University

Sally KatzenExecutive Managing Director, The Podesta Group

Edward KleinbardPro essor, USC School o Law

John KoskinenNon-Executive Chairman, Freddie Mac

Richard LeonePresident, The Century Foundation

Ellen MillerExecutive Director, Sunlight Foundation

Claire OConnorFormer Director o Per ormance Management,

City o Los Angeles

Tim OReillyFounder and CEO, OReilly Media

Ali PartoviSenior Vice President o Business Development,MySpace

Tony ScottChie In ormation O cer, Microso t

Richard H. ThalerPro essor, University o Chicago Schoolo Business

Eric ToderFellow, Urban Institute

Margery Austin TurnerVice President or Research, Urban Institute

Laura D. TysonPro essor, University o Cali ornia-BerkeleySchool o Business

Members of the advisory board do not necessarily share all the views expressed in this document.


5/30

Contents 1 Introduction and summary

3 The problem with tax-exempt municipal bonds3 What are tax-exempt bonds?

5 Why tax-exempt bonds are inefficient

9 The birth and premature death of Build America Bonds11 The backlash against Build America Bonds

12 A return to muni-bond turmoil

14 A proposal to bring back BABs14 BABs promote budget discipline

15 BABs can coexist with tax-exempt bonds

17 A volume cap on tax-exempt bonds can control costs

19 Conclusion

20 Endnotes

22 About the authors and a cknowledgements


6/30


7/30

I uc i a summa y | www.am ica p g s

Introduction and summary

In he mon hs a er he collapse o Lehman Bro hers in Sep ember 2008, ear anduncer ain y in he global credi marke s spread o he municipal bond marke .Inves ors ed muni bonds and prices plunged.

Advisers recommended ha s a e and local governmen s delay issuing new deb because o high yields and weak demand. Bu pressing nancial and in ras ruc ureneeds mean ha s a e and local governmen s o en could no jus wai ou he

crisis. Te urmoil in he municipal bond marke hrea ened o worsen he na ionsplunge in o recession.

Te municipal bond crisis presen ed an oppor uni y or ederal lawmakers o noonly s reng hen he municipal marke , bu o respond o a longs anding problemin he way s a e and local ax-exemp bonds are s ruc ured. In 2009, he Obamaadminis ra ion and Congress crea ed he Build America Bonds program. Build America Bonds were axable s a e and local governmen bonds or which a por-

ion o he in eres cos s were subsidized by he ederal governmen .

Te subsidized bonds were an innova ive nancing mechanism ha would proveo s reng hen he municipal deb marke . Over he pas wo years, hese subsi-

dized bonds nanced much-needed in ras ruc ure inves men a he s a e andlocal governmen level while making he ax-exemp municipal bond markes ronger and more e cien . Perhaps mos impor an ly, he program also lowered

he borrowing cos s or s a e and local governmen s.

Despi e he success o his program, Congress ailed o reach agreemen o ex endhe program a he end o he 111 h Congress and i expired on December 31,

2010. Te opposi ion o Build America Bonds s emmed largely rom an an ipa hy o ederal spending. Bu , as we show, Build America Bonds do no necessarily

increase he size o he ederal governmen ; he program simply makes he ederalgovernmen more e cien in how i inves s axpayer unds. Build America Bondsprovided a s reamlined al erna ive o an exis ing ederal subsidy program: Te ax exclusion or municipal bonds.


8/30

2 C Am ica P g ss | B i g Back BABs

Te yields on ax-exemp bonds have since risen drama ically, wi h many maranalys s atribu ing he urmoil o he demise o Build America Bonds. Slocal governmen s are already acing severe budge shor alls, and higher bocos s will exacerba e hese problems, hrea ening needed services and inves

For una ely, Congress can s ill revive he Build America Bonds program amake i a permanen ea ure o he municipal bond marke . In his paperpose o s reng hen he municipal marke as a whole hrough a permanen America Bonds program ha improves he way he ederal governmen pmo es impor an public inves men s a he s a e and local level, and lowcos o capi al. Speci cally, we recommend o expand he Build America marke and o place an annual ceiling on he number o ax-exemp issuanso doing, we allow Congress o beter manage ederal suppor o s a e and

nancea par icularly impor an ou come as our coun ry simul aneouslyron s large s ruc ural budge de ci s and long overdue in ras ruc ure i


9/30

t p bl m wi ax- x mp mu icipal b s | www.am ica p g s

The problem with tax-exemptmunicipal bonds

S a e and local governmen s issue bonds o nance long- erm inves men s inhings like roads, ransi , public works, and schools. Bond sales raise unds ha

can be used immedia ely while allowing he governmen s o repay hem, wi hin eres , over ime and according o a schedule.

What are tax-exempt bonds?

Municipal bonds are an atrac ive inves men because he in eres paymen sreceived by inves ors are exemp rom ederal income axes, unlike mos o her

orms o income. Because municipal bonds en i le heir owners o a ax- rees ream o income, inves ors are willing o accep lower in eres paymen s han hey would i he bonds were axable. Te ederal ax exemp ion, here ore, efec ively reduces borrowing cos s or s a e and local governmen s.

o unders and how his works, consider he ollowing example:

John runs a success ul accoun ing rm in Los Angeles. His annual incomeo $500,000 easily pu s him in he op ederal income ax bracke o 35 per-cen . John is in eres ed in rela ively sa e inves men s and is considering various xed-income securi ies, such as reasury and municipal bonds.One op ion is o inves $20,000 in axable 20-year reasury bonds yielding4.3 percen a year. Te reasuries would pay John annual in eres paymen so $860, or $559 a er ederal income axes. Ta s equivalen o a 2.8 per-cen a er- ax yield.

Meanwhile, he ci y o Shelbyville is planning o issue bonds o raise money or a large public-works projec . In order o en ice inves ors like John,

Shelbyville only needs o ofer hem 20-year ax-exemp bonds a sligh ly more han a 2.8 percen yield (assuming, or purposes o his example, heinves ors believe he likelihood ha Shelbyville will de aul on i s deb is


10/30


no grea er han a ederal credi de aul ). Te Shelbyville bonds wouldsligh ly more han $559 in in eres each year, bu none o i would bproviding John wi h he same amoun o a er ax-income as he ax

reasury bond.

Botom line: Shelbyville can ofer in eres ra es ha are 1.5 percen agelower han he equivalen -dura ion reasury bonds and s ill nd inves who are willing o buy i s bonds. Ta means ha Shelbyville, assumincredi wor hiness is good, can nance i s capi al inves men s a a low

han he U.S. governmen can.

Even hough U.S. reasury bonds are considered he sa es inves men s, inra es on ax-exemp municipal bonds have ended o be lower han reasure ec ing he efec o he ax exemp ion. (See Figure 1)

By leting s a e and local governmen s pay ax-exemp in eres o heir bholders, he ederal governmen is or ei ing income ax i would have ocollec ed. Ta s why economis s call his kind o ax rule a ax expendispecial provision in he ax code ha resul s in lower ax revenue.

Te ax exemp ion or s a e and locapublic purpose bonds will cos he

ederal governmen $230.4 billionover he 2012-2016 period , according

o es ima es published by he O ceo Managemen and Budge , makingone o he larges ax expendi ures.1

Tere were abou $2.8 rillion inmunicipal bonds ou s anding a heend o 2010. Individual inves ors andmu ual unds, whose shareholders aremos ly individuals, own 71 perceno ax-exemp municipal bonds.Insurance companies and banks

each own roughly 10 percen o hemunicipal bond marke .2

Figure 1

Tax-exempt interest rates v. Treasury bond rates

The municipal-bond tax exemption lowers the interest rates that investorsare willing to accept

1 9 9 3

- 1 0

1 9 9 4

- 0 6

1 9 9 5

- 0 2

1 9 9 5

- 1 0

1 9 9 6

- 0 6

1 9 9 7

- 0 2

1 9 9 7

- 1 0

1 9 9 8

- 0 6

1 9 9 9

- 0 2

1 9 9 9

- 1 0

2 0 0 0

- 0 6

2 0 0 1

- 0 2

2 0 0 1

- 1 0

2 0 0 2

- 0 6

2 0 0 3

- 0 2

2 0 0 3

- 1 0

2 0 0 4

- 0 6

2 0 0 5

- 0 2

2 0 0 5

- 1 0

2 0 0 6

- 0 6

2 0 0 7

- 0 2

2 0 0 7

- 1 0

2 0 0 8

- 0 6

2 0 0 9

- 0 2

2 0 0 9

- 1 0

2 0 1 0

- 0 6

20-year U.S.Treasury bonds

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

20-year tax-exempt munis
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/receipts.pdfhttp://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/receipts.pdfhttp://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/receipts.pdfhttp://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/receipts.pdfhttp://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/receipts.pdfhttp://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/receipts.pdf


11/30


Why tax-exempt bonds are inefficient

ax-exemp municipal bonds lower he borrowing cos s or s a e and local govern-men s, bu hey are an ine cien and cos ly ederal subsidy. Ta s because a sig-ni can por ion o he subsidy in ended or he governmen s is ins ead cap ured by bond buyers in he op income ax bracke s.

Unders anding how his wind all happens is key o unders anding why direc -subsidy bonds like Build America Bonds are a airer and less expensive way or he

ederal governmen o subsidize local capi al projec s.

Te main poin o keep in mind is ha he ax exemp ion on municipal bondin eres , like any income ax exemp ion, is mos valuable or buyers in he opincome ax bracke s. A muni bondholder in he 35 percen bracke pays $35 less in

axes or every $100 in in eres income he receives, while a buyer in he 10 percen bracke saves jus $10. Ta explains why people in he op income ax bracke , he weal hies Americans, are he mos willing buyers o ax-exemp bonds.

I s a e and local governmen s sold bonds exclusively o hese op-bracke inves-ors, he governmen s could, in heory, issue bonds paying a 35 percen lower

yield han comparable axable bonds. A ha yield, op-bracke inves ors wouldnd he ax-exemp and axable bonds equally atrac ive.

General obligation bonds

General obligation bonds, or GO bonds, are secured by the taxingpower o the issuing government. GO bonds make up more than80 percent o the tax-exempt bond market. 3 They allow states to

nance a variety o public works projects and activities, using uturetax revenue to pay back the bonds.

Revenue bondsState and local governments also issue revenue bonds, so calledbecause they are backed by the revenues expected to ow rom thebond- nanced project. For example, a bond used to nance the con-struction o a toll road might be backed by the toll revenue.

Private activity bonds

Private activity bonds are tax-exempt bonds issued by state or governments or the primary purpose o nancing a private por activity. Congress allows state and local governments to allolimited amount o these bonds to encourage certain private deopment that ostensibly creates a public bene t, such as buildinhospitals. Each year, Congress restricts the issuance o privatebonds by implementing an annual volume cap on new issuance2010, the volume cap was $30.857 billion, a slight increase ro2009 cap o $30.607 billion.4

Types of tax-exempt municipal bonds


12/30


Te problem is ha he appe i e or muni bonds among people in he op bracke is insu cien o mee s a e and local governmen s need or naing. Te municipal issuers, here ore, mus also sell bonds o people wi h loincomes who are axed a lower ra es.5 And ha means he bond issuers have oofer higher ra es o all inves ors, giving he bond buyers in he highes in

ax bracke s a wind all.6

o see how his happens, le s re urn o John, our $500,000-a-year accoun

John, who is in he 35 percen income ax bracke , decides o buy $2o axable 20-year reasury bonds yielding 4.3 percen annually. Ta ghim an a er- ax annual re urn o $559, equivalen o a 2.8 percen yicomparable ax-exemp municipal bond.

Johns riend, S an, is an engineer whose salary is $125,000, which pu

in he 28 percen income ax bracke . S an also inves s $20,000 in a20-year reasury bonds paying 4.3 percen a year. Ta gives S an an a

ax annual re urn o $619, equivalen o a 3.1 percen yield on a comax-exemp muni bond.

While a ax-exemp muni bond issuer would have o pay 2.8 percen en ice John o purchase i s bonds, i mus ofer a yield o a leas 3.1

o make i wor h S ans while. I no enough op-bracke inves ors buy all he municipal bonds available, he issuers mus ofer a yield halso atrac inves ors like S an.

And ha s exac ly wha happens, genera ing a wind all or John. Teissuer compe ing or S ans business has o pay a 3.1 percen in eres John ge s ha ra e as well, giving him $60 more in a er- ax re urns wha should be needed o mo iva e him o buy he bond.

Ta s good or John, bu no or he issuer, whose borrowing cos s hagone up and who here ore isn receiving he ull value o he edesidy. In heory, he issuer should be able o borrow $20,000 a year or

$559 in annual in eres paymen s. Bu because par o he subsidy ho John, he issuer is ac ually paying $619 in in eres paymen sand

pocke ing he diference.

o be sure, his is a simpli ed example ha ignores he many o her ac ogovernmen s and inves ors consider when selling and buying bonds. Bu h


13/30


dence shows ha he general dynamic is real: Lower-bracke buyers push up he yield on municipal bonds above wha a buyer in he op bracke would demand

o buy he bonds.7 As a resul , local governmen s ofering ax-exemp bonds pay higher in eres -ra e paymen s han necessary o atrac op-bracke inves ors.8 (See Figure 2)

None o his is he aul o high-income ax-exemp bond buyers. Teyre jus buying he bonds ha ofer he bes a er- ax yield. Te aul lies wi h an imper ec

ederal subsidy delivered o s a es hrough he ax code.

Te reasury Depar men es ima es ha 10 percen o 20 percen o he subsidy,in ended solely or s a e and local governmen issuers, is cap ured by bond buyersin higher ax bracke s.9 Te ax expendi ure or municipal bonds, here ore, cons i-

u es a ederal rans er o bondholders in higher ax bracke s.10 (See Figure 2)

Te cos o his ine ciency is no rivial. Wi h 10 percen o 20 percen o he sub-sidy leaking o bond buyers, he cos o he ine ciency o U.S. axpayers in unnec-essary oregone revenue could be grea er han $6 billion per year.11 Ul ima ely, hereduc ion in in eres cos s or s a e and local governmen s is less han he ederal

ax expendi ure. Ta is, he ederal governmen or ei s one dollar in ax revenueunder he deduc ion, bu s a e and local governmen s save only eigh y cen s.

A Congressional Budge O ce-JoinCommitee on axa ion s udy ound

ha A direc appropria ion o unds would purchase more in ras ruc ureon a dollar- or-dollar basis.12 Tais, he ederal governmen would gemore bang or i s buck i i simply gavemoney o s a e and local governmen s

o spend on capi al inves men s.

Func ionally, ha s wha Build America Bonds do and i s why hey

ofer a dis inc advan age over ax-exemp municipal bonds.

Figure 2

A costly yield for state and local governments

0%

1%

2%

3%

4%

5%

6%

7%

8%

1 9 9 3

- 1 0

1 9 9 4

- 0 7

1 9 9 5

- 0 4

1 9 9 6

- 0 1

1 9 9 6

- 1 0

1 9 9 7

- 0 7

1 9 9 8

- 0 4

1 9 9 9

- 0 1

1 9 9 9

- 1 0

2 0 0 0

- 0 7

2 0 0 1

- 0 4

2 0 0 2

- 0 1

2 0 0 2

- 1 0

2 0 0 3

- 0 7

2 0 0 4

- 0 4

2 0 0 5

- 0 1

2 0 0 5

- 1 0

2 0 0 6

- 0 7

2 0 0 7

- 0 4

2 0 0 8

- 0 1

2 0 0 8

1 0

Yield on 20-year tax-zexempt munis (for all investors)

After-tax yield on 20-years U.S. Treasurybonds for investor in top tax bracket

t is g ap ic s ws a i v s s i p ma gi al i c m ax b ack s c ivig yi l ax- x mp b s a a - ax yi l c mpa abl t asu

m a s ig b wi g c s s issu s.
http://cboblog.cbo.gov/?p=398http://cboblog.cbo.gov/?p=398


14/30


Figure 3

An inefficient subsidy

Ten to 20 cents o every dollar intended or state and local governments leaks to toptax bracket buyers instead

One dollar in the formof foregone tax revenue Only 80-90 percent of the

subsidy accrues to state andlocal government issuers in the

form of reduced-borrowing costs

10-20 percent of the subsidyis captured by investors inthe top income tax brackets

ource: U.S. Department of the Treasury 13

The tax exemption or municipal bond interest has been around sincethe ederal income tax was established in 1913. Its original purposewas not to provide a ederal subsidy to states, but to comply withconstitutional law as it existed at the time. 14

The Supreme Court in 1895 held inPollack v. Farmers Loan and Trust Company that the Constitution prohibited the ederal govern-ment rom taxing state or municipal nancial instruments.15 (Thesame case also held the income tax to be unconstitutional, a holdingthat was overturned by the Sixteenth Amendment.) When the mod-ern income tax was enacted in 1913, Congress provided a speci cexclusion or municipal bond interest on the belie that taxing suchinterest would be unconstitutional under Pollack .16

The principle established in Pollack , known as the doctrine o governmental tax immunity, was gradually undermined by sucsive court decisions beginning in the 1930s. In 1988 the SupremCourt ruled that the intergovernmental tax immunity doctrine hbeen thoroughly repudiated. 17 That case, South Carolina v. Bamade it clear that Congress has the constitutional authority to tmunicipal bond interest.

In the intervening years, however, the municipal bond market hgrown tremendously in size and importance. Strong constituendeveloped or retaining the exemption. Numerous eforts to repthe exemption or convert it into diferent orms all ailed.18

An accidental subsidy


15/30

t bi a p ma u a Buil Am ica B s | www.am ica p g s

The birth and premature deathof Build America Bonds

Te nancial crisis ha began in he sub-prime mor gage marke had by 2008in ec ed he municipal bond marke . Foreclosure ra es had spiked, causing s a eand local proper y ax revenue o plumme . Te credi marke s were con rac ingand he underwri ers and insurers ha radi ionally suppor ed he municipal bondmarke were in dire s rai s. Municipal bond insurers were being downgraded, driv-ing up in eres ra es on he bonds hey backed. Inves ors were eeing he markeas a whole. For some, i was, he wors crisis in bond marke his ory.19

Te municipal bond marke problems hrea ened o worsen he economy-widerecession. Bu hey also presen ed an oppor uni y or experimen a ion in s a eand local nance. In he American Recovery and Reinves men Ac o 2009,Congress crea ed an al erna ive o ax-exemp bonds, called Build AmericaBonds.20 Under his program, s a e and local governmen s could issue axable bonds o nance in ras ruc ure inves men , bu have he ederal governmen pay par o he in eres cos . Tis subsidy was se a 35 percen o he in eres cos s

or 2009 and 2010. Ta means he direc subsidy on a Build America Bond wasequal o he implici ederal subsidy on a ax-exemp bond purchased by an inves-

or in he 35 percen ax bracke .

By making direc paymen s o he issuer, he ederal governmen elimina ed he wind all o high-income inves ors, ensuring ins ead ha 100 percen o he ederalsubsidy bene ed s a e and local governmen s. Build America Bonds promised

o be a ar more e cien way o subsidize s a e and local governmen s han ax-exemp bonds.21

Indeed, he reasury Depar men es ima es ha s a e and local governmen s

saved over $12 billion in ne presen value by issuing Build America Bonds.22

Lower borrowing cos s, in urn, mean s a es pay less or public projec s and passless o he cos o he projec on o axpayers.


16/30


Te program also helped expandhe marke or municipal bonds aime when individual re ail inves o

were eeing he ax-exemp markeTa s because Build America Bonds

were atrac ive o buyers who arenhelped by he municipal bond ax exemp ion, such as pension unds,

oreign inves ors, and li e insur-ance companies. By appealing o a broader array o inves ors, he diresubsidy bonds accessed un appeddemand in he marke . [ ]he BABprogram has succeeded in openingup he municipal marke o non-

axable and o her non- radi ionalinves ors, wro e Andrew Ang, Vineer Bhansali, and Yuhang Xing in wha w

rs independen repor o he Build America Bonds program.23

Build America Bonds also had salu ary efec s on he ax-exemp marke . availabili y o Build America Bonds has enabled s a e and local governmenissue ewer ax exemp bonds, which has lowered heir borrowing cos s inexemp marke , wro e Alan Krueger, ormer assis an reasury secre arynomic policy, in December.24 Wi h Build America Bonds available as an al erna

ive, s a e and local governmen s could op o issue ax-exemp bonds onlow yields made hem atrac ive.

In he six mon hs ollowing he crea ion o he Build America Bonds pro yields on long- erm ax-exemp bonds dropped by abou 20 o 30 basis.25 More

ellingly, he spread be ween ax-exemp bond yields and axable reasury yields narrowed signi can ly over he li e o he program. (See Figure 4) W

ax-exemp bond yields approach reasury yields, ha s a sign ha he max-exemp bonds is becoming more e cien .

Ano her posi ive ou come o he Build America Bonds program was i s abis imula e cri ical in ras ruc ure inves men . In ras ruc ure projec s yplonger-ma uri y nancing because o he longer economic li e o projec s. exemp bonds have radi ionally been issued a shor er ma uri ies, re ec inpre erence or shor - erm deb o he re ail inves ors hey atrac .26 Tis pre erencecrea ed a misma ch be ween he needs o issuers and he demands o inves

Figure 4

Build America Bonds strengthened the tax-exempt bond market

The increase in issuances o Build America Bonds reduced the supply o tax-exempt bonds. With ewer tax-exempt bonds in the market, issuers were ableto issue bonds at lower rates and generated important cost savings.

AAA GO muni yield as a percent o U.S. Treasuries

BABs created February 2009

60%

80%

100%

120%

140%

160%

180%

2 0 0 8

- 1 1

2 0 0 8

- 1 2

2 0 0 9

- 0 1

2 0 0 9

- 0 2

2 0 0 9

- 0 3

2 0 0 9

- 0 4

2 0 0 9

- 0 5

2 0 0 9

- 0 6

2 0 0 9

- 0 7

2 0 0 9

- 0 8

2 0 0 9

- 0 9

2 0 0 9

- 1 0

2 0 0 9

- 1 1

2 0 0 9

- 1 2

2 0 1 0

- 0 1

2 0 1 0

- 0 2

2 0 1 0

- 0 3

2 0 1 0

- 0 4

2 0 1 0

- 0 5

2 0 1 0

- 0 6

2 0 1 0

- 0 7

2 0 1 0

- 0 8

2 0 1 0

- 0 9


17/30

t bi a p ma u a Buil Am ica B s | www.am ica p g ss

Bu Build America Bonds could be issued a longer ma uri ies because hey ca ered also o long- erm ins i u ional inves ors. Te independen s udy o heBuild America Bond program by Ang, Bhansali, and Xing no ed ha 54 perceno Build America Bonds have ma uri ies longer han 10 years, compared o jus 34percen or ax-exemp bonds.27

[Build America Bonds] are he la es mechanism ha can e cien ly and ma eri-ally mi iga e he s ruc ural ine ciencies in he long end o he ax-exemp curve, wro e JP Morgan municipal marke analys s Chris Holmes and Alex Roever in Bond Buyer in November, re erring o Build America Bonds abili y o atrac buyers wi h longer inves men horizons.28 Build America Bonds, in being issueda longer ma uri ies, helped s imula e inves men in in ras ruc ure a a ime whensuch inves men was badly needed.

All in all, he Build America Bonds experimen was success ul: I s reng hened

he municipal marke , reduced ine cien re urns o high income bond buyers,and brough abou long-overdue inves men in in ras ruc ure a he s a e andlocal level. I did so a a ime when broader nancial marke s were ragile and heeconomy was s ruggling ou o he deepes recession in wo genera ions. And ye ,Congress ailed o ex end he program beyond i s expira ion on December 31,2010. Why was ha ?

The backlash against Build America Bonds

Te Build America Bonds program provides ederal paymen s o s a e and localgovernmen s o ofse borrowing cos s. Tose subsidy paymen s appear as an ou -lay in he ederal budge . ax-exemp bonds, in con ras , involve no ederal ou lay because he equivalen governmen subsidy is delivered as a ax expendi ureor

or ei ed revenue. Since he Build America Bonds program genera es a cos onhe spending side o he ledger, i has drawn cri icism rom conserva ives wi h an

ideological aversion o spending.

Sen. Charles Grassley (R-IA) said he Build America Bonds program increases

he size o he already bloa ed ederal governmen because i akes wha used o bea ax-cuting program, namely, [ ax-exemp ] municipal bonds, and conver s hain o Build America Bonds.29 Columnis David Reilly o Te Wall Street Journal called he bonds a s a e budge bailou ha should be scrapped.30


18/30


Tese cri iques are based on a meaningless accoun ing dis inc ion be ween dgovernmen spending and indirec -governmen spending done hrough he code. I makes no diference o he ederal reasury whe her Congress spenmoney by collec ing axes and hen wri ing a check, or by or ei ing ax i o herwise would have collec ed. Money spen and money dis ribu ed h

ax breaks or speci c ac ivi ies are bo h a orm o governmen spendinax-exemp bonds and Build America Bonds are bo h spending programs hcommi ederal resources o s a e and local governmen s, and involve hegovernmen in suppor ing s a e and local in ras ruc ure. Build America Bdeliver he ederal subsidy more e cien ly.

Build America Bonds cri ics also no ed ha underwri ing ees were ypicor direc -subsidy issuances han or comparable ax-exemp bond issuance

be sure, ees were higher a he ou se as underwri ers ook on he addi iand efor involved in ofering a new produc . Since May o 2010, he ees de

s eadily in line wi h underwri ing ees or ax-exemp bonds.31 Had he program been ex ended, underwri ing ees would have likely been pushed down by mcompe i ion among underwri ers and an expanding marke or he bonds.

A return to muni-bond turmoil

Te expira ion o he Build America Bonds program has no only res ored ine cien marke or ax-exemp bonds, i has con ribu ed o dis ress inmunicipal bond marke generally.

ax-exemp yields are a heir highes in a year. wen y-year general obligax-exemp bonds rose 31 basis poin s in he rs week alone a er he pro

expira ion a he end o December. Te municipal marke has basically losraining wheels, and now i has o learn how o ride a bike all over again, s

Michael Pie ronico, chie execu ive o cer o Miller abak Asse Managem January. Ta means higher yields.32

A a ime when mos s a es ace budge shor alls, s a es are now payi

wo- hirds more o borrow han when hey issued Build America Bonds in33

O hers will simply choose no o nance projec s because he borrowing c will be oo high. Ta will mean ewer new inves men s, wi h immedia e i


19/30

t bi a p ma u a Buil Am ica B s | www.am ica p g ss

on job crea ion and long- erm rami ca ions or economic grow h. For de ci - wracked s a e and local governmen s, he demise o he Build America Bondsprogram could no have come a a worse ime.

In he nex sec ion, we argue ha Congress should s reng hen he municipal

bond marke by reviving Build America Bonds. We describe some o he bene so reviving Build America Bonds and propose a po en ial way or Congress omanage he dep h o he ederal subsidy or s a e and local nance.


20/30


A proposal to bring back BABs

Congress should revive he Build America Bonds program, broaden he prec s i is permited o nance, and make i a permanen ea ure o he muni bond marke .34

Te rein roduc ion o Build America Bonds will again expand he municipalmarke o new inves ors who end o purchase bonds a longer ma uri iesshould add much needed demand o a curren ly vola ile municipal bond mar

as well as provide crucial suppor o s a e and local in ras ruc ure inves

Tis approach should also lower he borrowing cos s o s a e and local govemen issuers. Ta will reduce pressures o increase axes in order o nanceimpor an public projec s. A a ime o grea nancial dis ress in many slocal governmen s, such savings are all he more impor an .

BABs promote budget discipline

One o he major advan ages o Build America Bonds is ha hey give Che abili y o de ermine he amoun o ederal resources ha go oward

ing s a e and local nance.

By con ras , he ax expendi ure on ax-exemp bonds is no de erminedCongress. For mos ederal programs ha inves direc ly in in ras ruc ur

ederal highway spending, Congress se s i s annual budge au hori y hroappropria ions process. ax-exemp bonds, by con ras , opera e on au opilcos o he U.S. reasury rom year o year is de ermined mainly by he ag

volume and in eres ra es o ax-exemp bonds ha s a e and local goveissue and have ou s anding.


21/30

A p p sal b i g back BABs | www.am ica p g ss

Te scal cos is also de ermined by marginal ax ra es, principally he op-mar-ginal ra e. Te higher he op-marginal ra es, he more atrac ive ax-exemp bondsare or inves ors in hose bracke s. Ye Congress mus weigh innumerable o herconsidera ions in seting marginal ax ra es o her han he appropria e level o subsidy or s a e and local nance. e hering ha subsidy o increases or decreases

in he op marginal ax ra e is a s range way o seting na ional priori ies. Te poinis ha , as a mater o principle, he size o he ederal subsidy should be he resulo delibera e policy decisions concerning ederal suppor or s a e and local in ra-s ruc ure inves men .

Wi h Build America Bonds, Congress can choose he size o he subsidy simply by adjus ing he subsidy ra e. During heir rs wo years o exis ence, Build AmericaBonds paid a 35 percen subsidy ra e. Ta is, he ederal governmen covered35 percen o issuers in eres cos s. Bu Congress could choose o renew Build America Bonds a a lower subsidy ra e. Diferen economic condi ions in u ure

years migh call or a less- or more-generous subsidy.

Te Obama adminis ra ion has proposed renewing Build America Bonds a a 28percen subsidy ra e. Ta is wha he adminis ra ion projec s as he revenue neu-

ral subsidy ra e, or he ra e a which he cos o he Build America Bond subsidy is na urally ofse by a reduc ion in or ei ed revenue rom ewer ax-exemp bondissuances.35 O hers in Congress have proposed reviving Build America Bonds a a32 percen subsidy ra e.36

Congress could even ofer varying subsidy ra es or he Build America Bonds haund diferen ypes o inves men s, beter arge ing ederal unds oward desired

purposes. And o ensure ha Build America Bonds become a grea er share o hemunicipal bond marke , Congress could expand i s eligible uses o include re und-ing and o her ac ivi ies ha hey were no permited in i s original incarna ion.

BABs can coexist with tax-exempt bonds

Earlier his year, Sens. Ron Wyden (D-OR) and Dan Coa s (R-IN) proposed replac-

ing ax-exemp bonds wi h ax-credi bonds.37

Erskine Bowles and ormer Sen. AlanSimpson, co-chairs o he Presiden s Commission on Fiscal Responsibili y andRe orm, in December 2010 proposed o achieve de ci reduc ion by simply elimi-na ing he ax exemp ion or new issuances o municipal bonds.38


22/30


While we believe Build America Bonds are superior o ax-exemp bonds, whink ha he wo nancing vehicles can co-exis . Te coun rys recen ex

wi h Build America Bonds proves ha heir availabili y has salu ary efecax-exemp bond marke by reducing supply pressures.

O course, i migh be argued ha he immedia e elimina ion o ax-ex bonds could crea e urbulence in an already uns able marke . According oNa ional Con erence o S a e Legisla ures, 35 s a es are expec ed o hagaps or s a e scal year 2012.39 An immedia e and drama ic change o he muipal bond marke migh increase borrowing cos s or s a e and local govea a diferen ime.

A sensible approach is o gradually reduce he supply o ax-exemp bondsnur uring he axable bond marke hrough he Build America Bonds prog

o his end, Congress could rein roduce Build America Bonds wi h a high esubsidy ra e o draw more and more issuers away rom issuing ax-exemp O course, he higher he subsidy ra e, he grea er he cos o he edera Assuming he revenue-neu ral subsidy ra e on Build America Bonds is 28 p

heir rein roduc ion a a subsidy ra e higher han 28 percen would be revnega ive. Ta is, he cos o subsidizing Build America Bonds a a higher r would ou weigh he revenue gained rom luring issuers away rom ax-exe

Bu a subsidy ra e lower han 28 percen is no necessarily correspondinglynue-posi ive or he U.S. reasury. I could resul in ewer Build America bu also more ax-exemp issuanceswhich means a bigger ax expendi u

ax-exemp bonds.

A volume cap on tax-exempt bonds can control costs

Congress can overcome his challenge by seting a volume cap on publicpurpose ax-exemp bonds, similar o he volume caps ha curren ly expriva e-ac ivi y bonds. Assuming demand or ax-exemp bonds s ays c

he reduc ion in heir supply would decrease yields o he poin a whicand local governmen s cap ured he en ire ederal subsidy, and leaked no

o high-income inves ors.


23/30

A p p sal b i g back BABs | www.am ica p g ss

Tis volume cap could be se periodically by Congress. ax-exemp bondingau hori y could be alloca ed o s a es on he basis o popula ion size; s a e bondcommissions could in urn dis ribu e bonding au hori y o local governmen s. Al erna ively, he ederal governmen could alloca e bonding au hori y by auc-

ion: Tose governmen s ha ofer o remi o he ederal governmen he high-

es percen age o heir in eres proceeds on he bonds would win he righ oissue hem. As envisioned by Calvin Johnson, a law pro essor a he Universi y o exas a Aus in: Te winners o he auc ion would be hose en i ies ha havea capi al projec ha can pass he highes hurdles.40 Te bond issuers wouldreceive he same subsidy ha i would under he curren ax-exemp bondsys em, bu he wind all would be remited o he ederal reasury ra her hanaccruing o op-bracke inves ors.

Regardless o he me hod o alloca ion, he cap would help ensure ha all buy-ers o newly issued ax-exemp bonds are in he op marginal-income ax bracke .

Tis would mean ha here would be no buyers rom lower ax-bracke s pushingup yields beyond wha a op ax-bracke inves or would demandand here oreno unin ended wind all o hose op-bracke inves ors. And o preven shor - ermdisrup ion in he municipal bond marke , he cap could be implemen ed over ime wi h he ceiling on ax-exemp issuances se high a rs and hen gradually reduced.

By imposing a cap on ax-exemp issuances, Congress can elimina e he ine -ciency, s reng hen he ax-exemp bond marke , and nur ure he marke or Build America Bondswi hou spending more han i already does hrough he muni- bond ax expendi ure.

I can do all his because bo h a volume limi on ax-exemp bonds and he sub-sidy ra e or Build America Bonds would be under Congresss con rol.

By wielding wo policy levers he subsidy ra e or Build America Bonds andhe volume cap or ax-exemp bonds Congress can crea e a municipal nance

subsidy ha is simul aneously:

More efficient: By reducing he supply o ax-exemp bonds, he wind all o

inves ors in he op marginal- ax bracke is elimina ed and borrowing cos s ors a es are lowered.


24/30


More fiscally responsible: Te dep h o he overall subsidy could be ra che eup or down o address ederal scal challenges and na ional priori ies.

More flexible : Congress can adjus he ax-exemp volume cap and he Bu America Bonds subsidy ra e or various ypes o projec s and in response

changing economic condi ions.


25/30

C clusi | www.am ica p g ss

Conclusion

Te municipal bond marke appears poised or a roubling year ahead. Demandor ax-exemp bonds is weak and borrowing cos s are increasing or municipal

issuers. o ur her complica e maters, he municipal bond marke in i s currenorm is ex remely ine cien and is ar rom he bes way o subsidize impor an

public inves men s. Billions o ederal ax dollars, in ended o subsidize s a e andlocal governmen s, are cap ured by bond buyers in higher-income ax bracke s.

Tis is a roubling s a e o afairs or wo principal reasons. Firs , municipal nanceis cri ically impor an o our economy. I allows s a e and local governmen s oraise he money necessary o und projec s ha bene he public good, improveour quali y o li e, and s reng hen communi ies. I helps nance he cons ruc iono bridges, roads, and sewer sys ems, and pay or essen ial services provided by police o cers, nurses, and eachers.

Second, ederal dollars are increasingly scarce a a ime o s ruc ural budgede ci s and serious long- erm scal challenges. Federal lawmakers have begun oconsider wha o do wi h beleaguered s a e and local governmen s. Te proposalou lined in his paper provides he 112 h Congress wi h a viable way o s abilize

he marke in he shor erm, and s reng hen he e ciency and po ency o hemunicipal bond marke in he long erm. Tis proposal provides crucial suppor os a e and local governmen s when hey need i mos .

Te advan age o his proposal is ha i is based on a Build America Bondsprogram ha has been es ed and shown o work. Given he immedia e scalchallenges acing all levels o governmen and he ongoing need or in ras ruc ureinves men , we should no le such a good idea go o was e.


26/30


1 o c Ma ag m a Bu g , F al r c ip s, availablp://www.w i us .g v/si s/ aul / l s/ mb/bu g / y2012/

ass s/ c ip s.p .

2 I v s m C mpa y I s i u , Mu icipal B FAQs (2008),availabl a p://www.ici. g/p licy/ma k s/ m s ic/ aqs_mu i_b .

3 F al r s v ba k, Fl w Fu s Acc u s U i S a s,(2011), availabl a p://www. al s v .g v/reLeASeS/z1/Cu -

/z1.p , p. 91, tabl 211.

4 C u cil d v l pm Fi a c Ag ci s, o igi al r s a c : 2010S a P iva Ac ivi y B V lum Caps (2010), availabl ap://www.c a. /c a/c aw b. s / baa 5956b2928b086256 a005c5 7

8/201ba83544470729862576a40051 3a9/$FILe/2010%20v lum %20cap%20 gu s%20 p %20 al.p .

5 C g ssi al Bu g o c , Subsi izi g I as uc u I v s mwi tax-P B s (2009), availabl ap://www.cb .g v/

c.c m?i x=10667.

6 t. A w , Implici tax s: evi c m taxabl , AMt, a tax-ex mp S a a L cal G v m B Yi l s, Journal of the American Taxation Association , 25 (1) (2003).

7 C g ssi al Bu g o c . Subsi izi g I as uc u I v s mwi tax-P B s.

8 t ig yi l ax- x mp mu icipal b s c mpa a - ax yi l c mpa abl t asu i s ca b xplai by asupp s ig isk aul wi mu icipal b s. r s a cby J C alm s a s m s a s is p i . F ui ma i , s J C alm s, d aul risk Ca explai

Mu i Puzzl ,The Review of Financial Studies, (Summ 1998), availabla p:// i .lcb.u g . u/jc alm /mu i.p .

9 Ala K u g , Buil Am ica B s A Y a o (Was i g : USd pa m t asu y). P s a i na i al Mu icipal BSummi , Ma c 18, 2010.

10 C g ssi al Bu g o c . Subsi izi g I as uc u I v s mwi tax-P B s, p. 34.

11 Au s calcula i s bas ax- xp i u gu s m o -c Ma ag m a Bu g . F m , s o c Ma ag m

a Bu g , F al r c ip s.


13 Ala K u g , Buil Am ica B s A Y a o .

14 Calvi J s , r p al tax ex mp i Mu icipal B s,Tax Notes 117 (2007):.1260. (Ci i g a ly l gisla iv is y).

15 Pollack v. Farmers Loan & Tr. Co., 157 US 429, 583-86 (1895).

16 t is is y is iscuss a l g i K vi Yamam , A P p sal elimi a i exclusi S a B I s ,Florida Law

Review 50 (145) (1998):162-66.

17 South Carolina v. Baker , 485 U.S. 505, 520 (1988).


19 B Waxma , P ila lp ia zapp by b ma k u m il,Philadelphia Enquirer , oc b 13, 2008, availabl a : p://a icl s.p illy.c m/2008-10-13/ ws/24991933_1_b -ma k -b -buy - ax- v u.

20 S cu i i s I us y a Fi a cial Ma k s Ass cia i , US Mu icipaBABs Fac S , 2010 Q3 (2010), availabl a p://www.si ma. g/

s a c /i m.aspx?i =19650.

21 I a i i au izi g issua c i c subsi y b s, Buil Am ica B s p g am als p mi s a a l cal g vm s issu a ax c i Buil Am ica B . h w w ul ax

c i b av w k ?

A buy ax c i Buil Am ica B w ul av c ivb i s paym s m issu a a al ax c i

a p c ag i s paym s. I cas ax cBuil Am ica B s, C g ss s siz ax c i a 35p c i s paym s.

o w p i s availabl u Buil Am ica B s p g am s , i all, s a l cal g v m s c s issu ax cb s ug u li p g am, p i g i s a issu

i c subsi y Buil Am ica B s. t as is was a i c subsi y Buil Am ica B f a g a subsi y

issu s a i ax c i Buil Am ica B . t is is u i awbacks ax c i b s, bu a sul 35 psubsi y a s by C g ss. S a a l cal g v m s w ul

av sav ly 26 p c i uc i s xp s s i y aissu ax c i Buil Am ica B s, w il i c subsi y p igua a i s savi gs 35 p c .

t b u s a w y is is u , l s u J i v s . Supp s J buys a ax c i Buil Am ica B w$1000. eac y a c iv s $75 i a ual i s paym s a a

ax c i qual 35 p c s i s paym s $26u , a ax c i sav s J $26 w ul i a ily av pa

al g v m i ax s. t g , ax c i ai s paym am u a al a ual yi l J $101, jus v 10 p c . F J c iv sam yi l a

axabl b , issu w ul av c v a $26 a pay ull $101 i i s paym s.

I is xampl , issu was abl uc i s b wi g c s s by26 p c i issui g ax c i b . Bu , a issu w ul ab v b f i i a issu a i c subsi y Buil Am icaB a f sam al yi l $101 J i v s t al g v m w ul av subsi iz 35 p c $101 i i s paym s, savi g jus v $35. J w ul avb b w s f a b , a issu w ul av

uc i s b wi g c s s by 35 p c . t is m s a s aa 35 p c subsi y a , i c subsi y b p i ac ually a p subsi y issu s a i ax c i b p

Wi qual subsi y a s, issu s p m g us isubsi y Buil Am ica B .

22 Ala B. K u g , t s im y B S a Ba ki g, h usi g aU ba Afai s C mmi , S p mb 21, 2010, availabl a :p://www. asu y.g v/p ss-c /p ss- l as s/Pag s/ g863.aspx.

Endnotes
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/receipts.pdfhttp://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/receipts.pdfhttp://www.ici.org/policy/markets/domestic/faqs_muni_bondhttp://www.ici.org/policy/markets/domestic/faqs_muni_bondhttp://www.federalreserve.gov/RELEASES/z1/Current/z1.pdfhttp://www.federalreserve.gov/RELEASES/z1/Current/z1.pdfhttp://www.cdfa.net/cdfa/cdfaweb.nsf/fbaad5956b2928b086256efa005c5f78/201ba83544470729862576a40051f3a9/$FILE/2010%20volume%20cap%20figures%20report%20final.pdfhttp://www.cdfa.net/cdfa/cdfaweb.nsf/fbaad5956b2928b086256efa005c5f78/201ba83544470729862576a40051f3a9/$FILE/2010%20volume%20cap%20figures%20report%20final.pdfhttp://www.cdfa.net/cdfa/cdfaweb.nsf/fbaad5956b2928b086256efa005c5f78/201ba83544470729862576a40051f3a9/$FILE/2010%20volume%20cap%20figures%20report%20final.pdfhttp://www.cdfa.net/cdfa/cdfaweb.nsf/fbaad5956b2928b086256efa005c5f78/201ba83544470729862576a40051f3a9/$FILE/2010%20volume%20cap%20figures%20report%20final.pdfhttp://www.cbo.gov/doc.cfm?index=10667http://www.cbo.gov/doc.cfm?index=10667http://odin.lcb.uoregon.edu/jchalmer/muni.pdfhttp://articles.philly.com/2008-10-13/news/24991933_1_bond-market-bond-buyer-tax-revenuehttp://articles.philly.com/2008-10-13/news/24991933_1_bond-market-bond-buyer-tax-revenuehttp://articles.philly.com/2008-10-13/news/24991933_1_bond-market-bond-buyer-tax-revenuehttp://www.sifma.org/research/item.aspx?id=19650http://www.sifma.org/research/item.aspx?id=19650http://www.treasury.gov/press-center/press-releases/Pages/tg863.aspxhttp://www.treasury.gov/press-center/press-releases/Pages/tg863.aspxhttp://www.treasury.gov/press-center/press-releases/Pages/tg863.aspxhttp://www.treasury.gov/press-center/press-releases/Pages/tg863.aspxhttp://www.sifma.org/research/item.aspx?id=19650http://www.sifma.org/research/item.aspx?id=19650http://articles.philly.com/2008-10-13/news/24991933_1_bond-market-bond-buyer-tax-revenuehttp://articles.philly.com/2008-10-13/news/24991933_1_bond-market-bond-buyer-tax-revenuehttp://articles.philly.com/2008-10-13/news/24991933_1_bond-market-bond-buyer-tax-revenuehttp://odin.lcb.uoregon.edu/jchalmer/muni.pdfhttp://www.cbo.gov/doc.cfm?index=10667http://www.cbo.gov/doc.cfm?index=10667http://www.cdfa.net/cdfa/cdfaweb.nsf/fbaad5956b2928b086256efa005c5f78/201ba83544470729862576a40051f3a9/$FILE/2010%20volume%20cap%20figures%20report%20final.pdfhttp://www.cdfa.net/cdfa/cdfaweb.nsf/fbaad5956b2928b086256efa005c5f78/201ba83544470729862576a40051f3a9/$FILE/2010%20volume%20cap%20figures%20report%20final.pdfhttp://www.cdfa.net/cdfa/cdfaweb.nsf/fbaad5956b2928b086256efa005c5f78/201ba83544470729862576a40051f3a9/$FILE/2010%20volume%20cap%20figures%20report%20final.pdfhttp://www.cdfa.net/cdfa/cdfaweb.nsf/fbaad5956b2928b086256efa005c5f78/201ba83544470729862576a40051f3a9/$FILE/2010%20volume%20cap%20figures%20report%20final.pdfhttp://www.federalreserve.gov/RELEASES/z1/Current/z1.pdfhttp://www.federalreserve.gov/RELEASES/z1/Current/z1.pdfhttp://www.ici.org/policy/markets/domestic/faqs_muni_bondhttp://www.ici.org/policy/markets/domestic/faqs_muni_bondhttp://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/receipts.pdfhttp://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/receipts.pdf


27/30

e s | www.am ica p g ss

23 A w A g, Vi B a sali, a Yu a g Xi g, Buil Am icaB s (C lumbus: C u cil d v l pm Fi a c Ag ci s, 2010),availabl a : p://www.c a. /c a/c aw b. s / baa 5956b-2928b086256 a005c5 78/ ba3283 20 9 a486257791007179 8/$FILe/BAB%20r p .p .

24 Ala K u g , ex Buil Am ica B s, hu g P s , d c m-b 6, 2010, availabl a : p://www. u g p s .c m/ala -b-k u g / x -buil -am ica-b _b_792811. ml.

25 Mic a l d ck , Buil Am ica B s: A Am ica Succ ss S y,Bond Buyer , n v mb 2, 2009, availabl a : p://www.b -buy .c m/issu s/118_210/buil _am ica_b s_succ ss_s -

y-1003300-1. ml.

26 h l Av y, Mu icipal b s: Buil Am ica B s a s ay S p mb 2009, availabl a p://www. u m y.c m/A icl /2296313/Mu icipal-b s-Buil -Am ica-B s-a - - -s ay. ml

27 A g, B a sali, a Xi g, Buil Am ica B s.

28 da S ym u , BABs: t Las Pilla S a i g,Bond Buyer , n v mb29, 2010, availabl a : p://www.b buy .c m/issu s/119_476/buil _am ica_b s-1020407-1. ml.

29 U i S a s S a C mmi Fi a c , G assl y Asks GAo r vi w Acc u abili y tax d lla s i Buil Am ica B s P g am(2010), availabl a : p:// a c .s a .g v/ ws m/ a ki g/

l as /?i =78f744 -2 82-4ba0-9 50-77b56 85 09.

30 davi r illy, Buil Am ica B s: Pas S ll-By da ,Wall Street Jour-nal , n v mb 16, 2010, availabl a p:// li .wsj.c m/a icl /SB20001424052748704865704575610922863520994. ml .

31 Ala K u g , ex Buil Am ica B s t ; Ala K u g ,r u i g Ba rap BABs, hu g P s , Ju 18, 2010, avail-abl a p://www. u g p s .c m/ala -b-k u g / u i g-

-ba - ap- _b_617138. ml.

32 Mic a l Sca c illi, Yi l s is as ev G C i s hav ha tim ,Bond Buyer , Ja ua y 14, 2011, availabl a p://www.b buy .c m/issu s/120_10/b _buy _i x s-1022121-1. ml.

33 B a A. McG ail, Wisc si Suf s as Buil Am ica B s d misrais s C s s: Mu i C i Bl mb g, Ja ua y 13, 2011, availabl a :

p://www.bl mb g.c m/ ws/2011-01-13/wisc si -suf s-as-buil -am ica-b s- mis - ais s-c s s-mu i-c i . ml.

34 t Am ica r c v y a r i v s m Ac 2009 s icBuil Am ica B s a ci g i as uc u p j c s. Fu ul gisla iv p p sals may li is s ic i .

35 P si obama p p s x Buil Am ica B s 2011a 2012 a a subsi y a 28 p c . t is was subsi y a aw ul b v u u al al g v m . I w s,a a a , al i c - al subsi y Buil Am ica B swas xp c qual v ugained m issu s c si g issu axabl Buil Am ica B s a a ax- x mp b s.

36 F m , s h.r. 992 Building America Jobs Act of 2011 .

37 Pa ick t mpl -W s , S . Wy t u s tax C i B s, hi s taxex mp i n w Mu is,Bond Buyer , Ap il 13, 2011.

38 t na i al C mmissi Fiscal r sp sibili y a r m, tM m t u (2010) availabl a p://www. scalc mmissi .g v/si s/ scalc mmissi .g v/ l s/ cum s/t M m -

t u 12_1_2010.p .

39 na i al C c S a L gisla u s, S a Bu g Up a : n -

v mb 2010 (2010), availabl a : p://www. csl. g/ cum s/scal/ v mb 2010sbu_ .p .

40 F m , s Calvi h. J s , A t m m tax Sys m: t ov all h al tax Sys m as M asu by Implici tax,SMU Law Review 56 (13): 50-51.
http://www.cdfa.net/cdfa/cdfaweb.nsf/fbaad5956b2928b086256efa005c5f78/eba3283f20ee9da486257791007179d8/$FILE/BAB%20Report.pdfhttp://www.cdfa.net/cdfa/cdfaweb.nsf/fbaad5956b2928b086256efa005c5f78/eba3283f20ee9da486257791007179d8/$FILE/BAB%20Report.pdfhttp://www.cdfa.net/cdfa/cdfaweb.nsf/fbaad5956b2928b086256efa005c5f78/eba3283f20ee9da486257791007179d8/$FILE/BAB%20Report.pdfhttp://www.huffingtonpost.com/alan-b-krueger/extend-build-america-bond_b_792811.htmlhttp://www.huffingtonpost.com/alan-b-krueger/extend-build-america-bond_b_792811.htmlhttp://www.bondbuyer.com/issues/118_210/build_america_bonds_success_story-1003300-1.htmlhttp://www.bondbuyer.com/issues/118_210/build_america_bonds_success_story-1003300-1.htmlhttp://www.bondbuyer.com/issues/118_210/build_america_bonds_success_story-1003300-1.htmlhttp://www.bondbuyer.com/issues/119_476/build_america_bonds-1020407-1.htmlhttp://www.bondbuyer.com/issues/119_476/build_america_bonds-1020407-1.htmlhttp://finance.senate.gov/newsroom/ranking/release/?id=78ff744e-2e82-4ba0-9e50-77b56d85d09ehttp://finance.senate.gov/newsroom/ranking/release/?id=78ff744e-2e82-4ba0-9e50-77b56d85d09ehttp://online.wsj.com/article/SB20001424052748704865704575610922863520994.htmlhttp://online.wsj.com/article/SB20001424052748704865704575610922863520994.htmlhttp://www.huffingtonpost.com/alan-b-krueger/retuning-the-bad-rap-for_b_617138.htmlhttp://www.huffingtonpost.com/alan-b-krueger/retuning-the-bad-rap-for_b_617138.htmlhttp://www.bondbuyer.com/issues/120_10/bond_buyer_indexes-1022121-1.htmlhttp://www.bondbuyer.com/issues/120_10/bond_buyer_indexes-1022121-1.htmlhttp://www.bloomberg.com/news/2011-01-13/wisconsin-suffers-as-build-america-bonds-demise-raises-costs-muni-credit.htmlhttp://www.bloomberg.com/news/2011-01-13/wisconsin-suffers-as-build-america-bonds-demise-raises-costs-muni-credit.htmlhttp://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdfhttp://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdfhttp://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdfhttp://www.ncsl.org/documents/fiscal/november2010sbu_free.pdfhttp://www.ncsl.org/documents/fiscal/november2010sbu_free.pdfhttp://www.ncsl.org/documents/fiscal/november2010sbu_free.pdfhttp://www.ncsl.org/documents/fiscal/november2010sbu_free.pdfhttp://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdfhttp://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdfhttp://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdfhttp://www.bloomberg.com/news/2011-01-13/wisconsin-suffers-as-build-america-bonds-demise-raises-costs-muni-credit.htmlhttp://www.bloomberg.com/news/2011-01-13/wisconsin-suffers-as-build-america-bonds-demise-raises-costs-muni-credit.htmlhttp://www.bondbuyer.com/issues/120_10/bond_buyer_indexes-1022121-1.htmlhttp://www.bondbuyer.com/issues/120_10/bond_buyer_indexes-1022121-1.htmlhttp://www.huffingtonpost.com/alan-b-krueger/retuning-the-bad-rap-for_b_617138.htmlhttp://www.huffingtonpost.com/alan-b-krueger/retuning-the-bad-rap-for_b_617138.htmlhttp://online.wsj.com/article/SB20001424052748704865704575610922863520994.htmlhttp://online.wsj.com/article/SB20001424052748704865704575610922863520994.htmlhttp://finance.senate.gov/newsroom/ranking/release/?id=78ff744e-2e82-4ba0-9e50-77b56d85d09ehttp://finance.senate.gov/newsroom/ranking/release/?id=78ff744e-2e82-4ba0-9e50-77b56d85d09ehttp://www.bondbuyer.com/issues/119_476/build_america_bonds-1020407-1.htmlhttp://www.bondbuyer.com/issues/119_476/build_america_bonds-1020407-1.htmlhttp://www.bondbuyer.com/issues/118_210/build_america_bonds_success_story-1003300-1.htmlhttp://www.bondbuyer.com/issues/118_210/build_america_bonds_success_story-1003300-1.htmlhttp://www.bondbuyer.com/issues/118_210/build_america_bonds_success_story-1003300-1.htmlhttp://www.huffingtonpost.com/alan-b-krueger/extend-build-america-bond_b_792811.htmlhttp://www.huffingtonpost.com/alan-b-krueger/extend-build-america-bond_b_792811.htmlhttp://www.cdfa.net/cdfa/cdfaweb.nsf/fbaad5956b2928b086256efa005c5f78/eba3283f20ee9da486257791007179d8/$FILE/BAB%20Report.pdfhttp://www.cdfa.net/cdfa/cdfaweb.nsf/fbaad5956b2928b086256efa005c5f78/eba3283f20ee9da486257791007179d8/$FILE/BAB%20Report.pdfhttp://www.cdfa.net/cdfa/cdfaweb.nsf/fbaad5956b2928b086256efa005c5f78/eba3283f20ee9da486257791007179d8/$FILE/BAB%20Report.pdf


28/30


About the authors

Jordan Eizenga is a Policy Analys wi h he Economic Policy eam a AmerProgress. Prior o joining he Cen er, Jordan was a Hamil on Fellow in heDepar men o he reasury where he worked wi h communi y developme

nancial ins i u ions o expand credi and equi y inves men s in dis ressunderserved domes ic marke s.

Seth Hanlon is Direc or o Fiscal Re orm or CAPs Doing Wha Works projPrior o joining CAP, Se h prac iced law as an associa e wi h he WashingD.C., rm o Caplin & Drysdale. He previously served on Capi ol Hill as a le

ive and press aide o U.S. Reps. Harold Ford, Jr. (D- N) and Mar y Meehan(D-MA).

Acknowledgements

Te au hors wish o hank Donna Cooper, Gadi Dech er, and James Hairs onor heir con ribu ions o his repor . Te au hors would also like o han

Rocke eller Founda ion or i s suppor o he Doing Wha Works projec


29/30


30/30

The Center or American Progress is a nonpartisan research and educational institut

dedicated to promoting a strong, just and ree America that ensures opportunity

or all. We believe that Americans are bound together by a common commitment to

these values and we aspire to ensure that our national policies re lect these values.

We work to ind progressive and pragmatic solutions to signi icant domestic and

international problems and develop policy proposals that oster a government that

is o the people, by the people, and or the people.

bring back babs: a proposal to strengthen the municipal bond market with build america bonds

Documents