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Build America to See ‘Reincarnation’ Effort, Mica Says

Representative John Mica
Representative John Mica. Photographer: Brendan Hoffman/Bloomberg

Representative John Mica, who becomes House Transportation and Infrastructure Committee chairman in January, plans to introduce a “reincarnation” of the Build America Bonds program, set to expire Dec. 31.

“I can almost guarantee a reiteration of the Build America Bond program,” Mica, a Florida Republican, said in an interview in Washington today. “We’re working to find a reincarnation.”

The federally subsidized program was created as part of President Barack Obama’s economic-stimulus legislation last year to drive down borrowing costs for localities on bridge, road and other infrastructure projects. Issuers have sold about $185 billion of the securities since April 2009, according to data compiled by Bloomberg.

Any move to resurrect the program may run afoul of Republicans critical of the stimulus program. The Congressional Budget Office has projected that the 10-year cost of the program will add $36 billion to the federal deficit.

Yields on top-rated tax-exempt municipal bonds due in 30 years fell about 8 basis points, the most since Nov. 22, to about 4.74 percent, as the long-term securities rallied, according to a Bloomberg Valuation index. A basis point is 0.01 percentage point.

The prospect of the program’s end has weighed on the $2.86 trillion municipal bond market as public officials have rushed to borrow money at subsidized rates and as investors expressed concern that traditional tax-exempt debt issuance may surge next year.

Subsidy Impact

New York City Comptroller John Liu said Build America has allowed the city to raise money from investors who wouldn’t buy tax-exempt bonds.

“It has allowed us to get favorable financing and allowed us to build roads, schools, bridges, hospitals,” he said in an interview on Bloomberg Television.

By paying 35 percent of the interest cost on the taxable bonds, the U.S. government may have saved borrowers at least $24 billion in today’s dollars compared with traditional tax-exempt debt, based on an April Treasury Department report.

“Renewing the program would allow for better relative performance versus Treasuries because renewal would quell investors’ fears over supply this year if it were renewed,” said Matt Fabian, managing director of Municipal Market Advisors, a Concord, Massachusetts-based research firm, in a telephone interview. “But I have a hard time expecting that would happen because Republicans have been very opposed to it.”

‘Uphill Climb’

Representative Dave Camp, the Republican who will take over the House Ways and Means committee in the next Congress, said yesterday that the securities were a relic of the “failed stimulus bill” that “subsidized state and local governments going deeper into debt.” Sage Eastman, a spokesman for Camp, said he had no further comment today.

Senator Jon Kyl, the Arizona Republican who is the party’s second-highest leader in the chamber, has raised similar concerns.

“It would be an uphill climb to successfully get Congress to revive the program,” said Michael Decker, a lobbyist for the Securities Industry and Financial Markets Association, the banking and investor trade group, in a telephone interview. The association has pressed to keep the subsidy in place.

Mica said the bond program may be part of a broader measure he intends to introduce that would include spending for roads, transit, railways and waterways.

He said he has been in contact with others in Congress, and had “great initial discussion” with Ways and Means officials.

“The current program might have been too generous,” Mica said. “We’ll find something we can get agreement on.”

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