Treasury Analysis of Build America Bonds and Issuer Net Borrowing Costs: Build America Bonds Issued to Date Will Save State and Local Governments Around $12 Billion in Present Value. Underwriting Fees Are Declining to Levels Almost Comparable to Tax Exempt Bonds

摘要

This Treasury report examines the effects of Build America Bonds (BABs) on issuer borrowing costs. BABs are taxable bonds for which the U.S. Treasury Department pays a 35 percent direct subsidy to the issuer to offset borrowing costs. BABs have had a very strong reception from both issuers and investors. From the inception of the program in April 2009 to March 31, 2010, there have been 1,066 separate BABs issues, which have supported more than $90 billion of municipal financing for new building projects. The empirical analysis presented in this report indicates that state and local governments that issued BABs will realize considerable savings as compared to the cost of issuing tax-exempt bonds. This is partly due to the BABs program improving the efficiency of the municipal bond market by attracting a broader set of investors that would not traditionally hold municipal bonds. The findings in this report provide evidence that President Obama's proposal to extend and expand the BABs program would likely lead to continued savings on borrowing costs for state and local governments.