Muni Groups Urge BABs, Other Direct-Pay Bonds Be Exempt from Mandated Budget Cuts

Eighteen muni market groups are urging the Obama administration to exempt Build America Bonds and other direct-pay bonds from sequestration so the Treasury Department’s subsidy payments to state and local government issuers are not cut. The groups, which include the Government Finance Officers Association, the Securities Industry and Financial Markets Association and the National Association of Bond Lawyers, made the request in a two-page letter  sent to officials at the Office of Management and Budget and National Economic Council. State and local governments issued about $182 billion of BABs in 2009 and 2010 after they were created by the American Recovery and Reinvestment Act. Millions of dollars more of direct pay bonds have been issued under the Hiring Incentives to Restore Employment Act, enacted in 2010. BAB issuers get subsidy payments from the Treasury equal to 35% of their interest costs. Most of the other direct-pay bonds have even higher subsidy payments.

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