Public projects such as $105 million of buildings at Miami University in Ohio and fixes for a highway known as the Main Street of Texas are likely to cost more after Dec. 31, when the federally subsidized Build America Bonds program is set to expire.
States and municipalities have sold $185 billion of the securities since their debut in April 2009 as part of President Barack Obama’s economic stimulus. 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.
“Getting by without it is going to be very difficult,” Pennsylvania Governor Ed Rendell, a Democrat whose state has sold $1.2 billion of the debt, said in a telephone interview. “States and municipal governments need all the help they can get if we’re going to keep investing in the country’s infrastructure.”
Borrowers are rushing to sell almost $5 billion of Build Americas this week, the most since the program began, to capture the savings. An extension was omitted from a bill that continues personal tax cuts, dooming what was the fastest-growing part of the $2.86 trillion municipal bond market.
Representative John Mica, a Florida Republican who becomes chairman of the Transportation and Infrastructure Committee in January, said he wants to keep the Build America program alive.
“I can almost guarantee a reiteration,” Mica said in an interview in Washington today. He said the program may be part of a measure he intends to introduce that would include spending for roads, transit and rail.
Build Americas were created last year as local governments faced what the National League of Cities said was the biggest decline in general-fund revenue since 1986. They were meant to sustain employment by funding infrastructure work after the economy lost more than 3.6 million jobs in 2008.
Obama’s $814 billion American Recovery and Reinvestment Act may have produced or saved as many as 3.3 million jobs in the three months that ended in June, the Congressional Budget Office said in an August report that didn’t break out employment related to Build Americas.
Work in Pennsylvania
Pennsylvania created about 40,000 jobs with the Build Americas it sold, said Gary Tuma, a Rendell spokesman. The state’s unemployment rate of 8.8 percent in October, below the U.S. average of 9.6 percent that month, is up from 5.8 percent two years earlier.
Pennsylvania will use a $466.6 million Build America sale this week on a project to repair thousands of bridges, creating as many as 20,000 jobs, said Rendell, who oversees a $28 billion annual budget. The state sold the 20-year general-obligation Build Americas on Dec. 15 to yield 5.86 percent, or 1.3 percentage points more than comparable Treasuries.
The extra yield investors demand to buy Build Americas instead of 30-year Treasuries reached a four-month high of 1.99 percentage points on Dec. 7 in the face of increased supply, according to a Wells Fargo index. The difference was 1.97 percentage points on Dec. 16.
The April Treasury report said the $90 billion of Build Americas sold up to then will save issuers $12 billion in present-value borrowing costs compared with tax-exempts, including underwriting fees and net interest costs. Another $95 billion has been issued since, according to data compiled by Bloomberg.
A $1.5 billion Build America sale by Texas in July will be used in part to refurbish 90 miles (145 kilometers) of Interstate 35, which links San Antonio to Dallas and carries more than 200,000 commuters daily as the state’s “Main Street,” said Kelli Petras, a transportation department spokeswoman.
“We’ve been able to push a lot of really good transportation projects out the door” with Build Americas, Petras said.
The state has issued more than $2 billion of Build America Bonds since August 2009, saving $550 million over 30 years because of the federal subsidy, Petras said.
Miami University in Oxford, Ohio, issued $105.4 million on Dec. 13 to replace a 50-year-old student center and build new dining halls, David Creamer, vice president of finance, said in a telephone interview. He recommended Build Americas over tax-exempts because the university would save $18 million over 25 years.
They “provided more swing space” for the university’s budget because less money will go to pay back lenders, Creamer said.
In Washington, D.C., Build America Bonds paid for $900 million of projects, said Lasana Mack, the district’s treasurer. Money will be used to maintain Civil War records and artifacts, open a new dog park, renovate prison-cell doors and restore city buses.
The district’s $181 million sale this week will go toward building schools, libraries and parks, Mack said.
“The borrowing costs were lower, so we could do more with our money,” Mack said. “The program was innovative. We’re sorry to see it go.”