Build America Sales May Surge to $40 Billion Next Month, Loop's Mier Says
Build America Bond issuance may surge next month to $40 billion as borrowers rush to take advantage of the expiring federal-subsidy program, said Chris Mier, a Loop Capital Markets LLC municipal strategist.
State and local governments are accelerating debt sales to December and will more than quadruple borrowing under the program compared with December 2009, Mier said today in an interview with Bloomberg News reporters and editors in New York.
The Build America program, which provides a 35 percent reimbursement of interest costs, will end Dec. 31 if Congress doesn’t extend it, as proposed by President Barack Obama. An extension passed the House of Representatives this year, then stalled in the Senate. About $163 billion of the taxable bonds have been sold, making them the fastest-growing segment of the municipal market, according to data compiled by Bloomberg.
“It’s enough to throw a kink into things,” Mier said. “Confusion is the enemy of a well-functioning state and we’ve got a lot of confusion.”
States and local governments sold about $9 billion of the securities in December 2009, according to data compiled by Bloomberg. The popularity of so-called BABs has reduced the use of conventional tax-exempt debt, which produces earnings for investors that’s free from federal and most state income taxes.
Part of Stimulus
Obama’s $814 billion economic-stimulus package created the Build America program last year at a projected taxpayer cost of $36 billion over 10 years. Obama sought to expand the Build America program this year, reducing the size of the subsidy and permitting sales by nonprofits next year. Some Democrats in Congress have also sought to extend the program.
California Treasurer Bill Lockyer said today that his “best prediction” is that lawmakers won’t agree to an extension, in an interview with CNBC. He cited “current Capitol Hill sentiment” as the basis for his outlook.
Senator Chuck Grassley, an Iowa Republican in line to become chairman of the chamber’s tax-writing committee in January, yesterday asked congressional investigators to determine how much of the program’s subsidies are going to Wall Street banks in the form of fees.
“I have a duty to eliminate fraud, waste and abuse in the BABs program,” Grassley said yesterday in a letter to the Government Accountability Office, the investigative arm of Congress. Grassley also cited potentially inadequate reporting rules on how the proceeds of Build America Bonds are spent.
Mier is a managing director at Chicago-based Loop, an investment bank that has managed more than $2.47 billion in municipal financings this year, according to data compiled by Bloomberg. He said he’s skeptical that Congress will keep the program alive, while he suggested it may be revived later.
“If it doesn’t get extended now, it’ll be six months to a year before it does,” he said. “It’s the 500th thing on Congress’s to-do list.”
To contact the reporter on this story: Alexandra Harris in New York at Aharris48@bloomberg.net.
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net
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