Build America Bonds

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Build America Bonds (BABs) are taxable municipal bonds that carry special tax credits and federal subsidies for either the bondholder or bond issuer.

The American Recovery and Reinvestment Act of 2009 created the Build America Bond program, which authorized state and local governments to issue Build America Bonds as taxable bonds in 2009 and 2010 to finance any capital expenditures for which they otherwise could issue tax-exempt governmental bonds. State and local governments receive a direct federal subsidy payment for a portion of their borrowing costs on Build America Bonds equal to 35 percent of the total coupon interest paid to investors.[1]

The program was intended to assist state and local governments in financing capital projects at lower borrowing costs and to stimulate the economy and create jobs.

In March of 2010, the Senate voted 68 to 29 to pass a $17.6 billion jobs bill requiring the Treasury Department to provide Build America Bond-style direct payments to municipal issuers of four types of tax-credit bonds, if they want them, instead of offering tax credits to investors.[2]

Also in March of 2010, Florida temporarily suspended sales of Build America Bonds on concern that the Internal Revenue Service may block federal interest-cost subsidies.[3]