Democrats Urge Senate Leaders to Add Build Americas to Tax Deal
Democratic senators are urging the chamber’s leaders to continue the Build America Bond program as part of legislation enacting the agreement that President Barack Obama struck to extend the 2001 and 2003 income-tax cuts.
The federally subsidized initiative, which pays 35 percent of the interest on state and local government bonds sold for public-works projects, wasn’t included in the deal that the White House brokered with Republicans. It is among the issues embroiled in negotiations over the compromise, which also included a payroll tax cut and aid for the unemployed.
At least nine Democratic senators led by Oregon’s Ron Wyden pressed Majority Leader Harry Reid and Minority Leader Mitch McConnell to keep the bonds available, saying they boost the economy by funneling money to construction jobs, according to a letter they signed yesterday.
“We urge that you include an extension of this important program as part of any tax-cut compromise,” the senators wrote.
The omission from the agreement set back efforts to prolong the program, which is to expire at year-end. The uncertainty has weighed on the $2.8 trillion municipal bond market: Local officials are rushing to borrow money before the subsidy ends, and investors express concerns that a finale could flood the market with traditional tax-exempt bonds next year.
“People don’t know the future of the program,” said Chris Mier, municipal strategist for Loop Capital Markets LLC. “Some investors are saying ‘I may not participate in a market that won’t exist in two weeks.’”
Rising Yields
The average yield on the taxable securities climbed to 6.35 percent yesterday, the most since Jan. 7, as investors demanded a larger premium to buy the debt, according to a Wells Fargo index. Signs that the global economic recovery is gathering pace also pushed down Build America Bond prices, which move inversely to yields, along with U.S. Treasuries and other fixed-income markets.
More than $177 billion of the securities have been sold since April 2009, making them the fastest-growing segment of the municipal market, according to data compiled by Bloomberg. Because they carry taxable rates comparable to corporate debt, state and local issuers have marketed Build America securities to pension funds, offshore investors and others who don’t typically buy municipal securities. That has curbed the supply of tax-exempt bonds and buoyed prices.
Scant Chatter
Senate Finance Committee Chairman Max Baucus, a Montana Democrat, yesterday said Build Americas are among issues left to be worked out by Congressional negotiators.
Amendments that Democrats are discussing include changes to the estate tax and the inclusion of breaks for clean-energy producers, Connecticut Senator Joe Lieberman, an independent, said in a Capitol interview. Build America Bonds are rarely mentioned, he said. “I didn’t hear much talk about that.”
Obama supports the bonds, White House economic adviser Lawrence Summers told reporters at the White House today.
“The president believes that Build America Bonds have made a very important contribution to spurring the various kinds of construction at the state and local levels, to strengthening of capital markets that he’d like to see,” Summers said. “He’d like to see them go forward.”
Republican Critics
With Republicans poised to take control of the House of Representatives in January, local governments, banks and other advocates are pressing to have the program extended in the current so-called lame-duck session.
Republicans -- including U.S. Representative David Camp of Michigan, who is in line to become chairman of the tax-writing Ways and Means Committee -- have criticized spending under Obama’s $814 billion stimulus package, which created the bond subsidies. Democrats, who now control the House, have passed measures to prolong the Build America program, only to see the bills stall in the Senate.
Republican Senator Jon Kyl, the party’s second-ranking leader in the chamber, is among those who have looked askance at Build America Bonds, saying that they encourage the most fiscally stressed states to borrow.
Reid told reporters today that he expects the tax bill to be voted upon within days. He declined to comment on changes that may be made to win over reluctant Democrats.
Senator Barbara Boxer of California, who signed the letter, said in an interview at the Capitol that she’s pressing for the measure to include more job-creating initiatives, while declining to comment on the nature of negotiations.
To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net; Robert Schmidt in Washington at rschmidt5@bloomberg.net;
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net
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