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How Build America bonds will affect local community projects

Marketplace Staff Dec 9, 2010
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How Build America bonds will affect local community projects

Marketplace Staff Dec 9, 2010
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TEXT OF INTERVIEW

Jeremy Hobson: Well we’ve heard about what made it into the tax cut compromise package. But what didn’t make it is also moving markets. There’s a part of the 2009 stimulus package called the Build America Bond program that’s set to expire at the end of the year.

To help explain what we’re talking about let’s bring in Toby Rittner. He’s with the Council of Development Finance Agencies and he joins us now from Columbus, Ohio. Good morning.

Toby Rittner: Good morning.

HOBSON: So tell us what the Build America bonds program is all about, and what’s it done so far.

RITTNER: The Build America bond program was passed in the stimulus in 2009. The idea behind it is to give cities and states and local governments the opportunity to continue to invest in bridges and roads and sewers over the period of the recession we had over the past two years.

HOBSON: So Congress steps in and helps. How did they do that? How does the federal financing work?

RITTNER: When a community decides to issue Build America bonds for their projects, they’re sold on Wall Street to investors, but the federal government provides a subsidy back to the community to buy down the interest rate on that bond. So effectively, they’re getting low-cost financing for the community.

HOBSON: And that subsidy from the federal government makes enough of a difference that communities are being able to issue more bonds than they would otherwise?

RITTNER: It has made an overwhelming difference. There’s been upwards of 2,000 projects nationwide, resulting in roughly $150 billion of investment, hundreds of thousands of jobs. You can just drive through any state or any community and you will see the projects. These are the orange cone projects that you’re seeing all over the country right now.

HOBSON: I can hear the skeptics right now saying, if we extend it for another year, then a year from now, people are going to want to extend it further. How long can the federal government step in and support the municipal bond market in this way?

RITTNER: We don’t support a long-term extension. Keep in mind, when they created these programs in 2009, it took the U.S. government a solid 10 months to really understand how any of these programs worked. And so we really are only looking at a 12-month period where we were able to really put these resources to use. Right now we estimate that there’s probably somewhere of 250 to 350 projects around the country that are contemplating the use of Build America bonds. With 25 days left in the current year, it’s unlikely that even a fraction of those will be able close in time and become real projects.

HOBSON: But we’ll see what Congress decides to do about that. Toby Rittner, who runs the Council of Development Finance Agencies. Thanks so much for joining us.

RITTNER: My pleasure, thank you.

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