Pennsylvania State Treasurer Robert McCord discusses opportunities for his state through the Build America Bond program.
President Obama's massive stimulus package rolled out a number of important measures intended to reinvigorate the struggling U.S. economy. One provision created the Build America Bonds program (BAB), allowing state and local governments to sell an unlimited amount of taxable Build America Bonds in 2009 and 2010.
The program offers municipalities a 35 percent direct subsidy from the federal government on the sale of these bonds, creating a potential windfall that can shore up strained local budgets. This session came at a moment when state and local governments are still poring over the terms of BABs to assess their overall benefits, feasibility and implementation.
Scott Minerd of Guggenheim Partners and Kathleen Brown of Goldman Sachs explained the value of these vehicles from an investor perspective: BABs allow investors the opportunity to diversify their investments into a very stable asset class that offers a much more secure and profitable return than current options in corporate debt. Tax credits further enhance their appeal. Since these bonds are not liquid, they are primarily meant to be long-term investments, something that is particularly attractive in an unstable economy.
From the state and municipal perspective, there are a number of factors to consider. As moderator Amy Resnick of The Bond Buyer pointed out, the history of this program goes back a painfully short two and a half weeks. Because they have no track record and the possible unintended consequences are unknown, Nancy Kopp, state treasurer of Maryland, noted that issuing these bonds will prove to be a major undertaking for many governments. However, the obvious reason still resonates: The 35% refundable credit frees up significant capacity for the issuer.
Nevada's state treasurer, Kate Marshall, brought up the question of revenues. As state and local governments are beginning to analyze the benefits of BABs, they are forced to assess their revenue streams and project ahead. Affordability is an issue for states such as Nevada, where a great deal of revenue came from property taxes but the real estate market is still suffering. Furthermore, the prescribed timeline indicates that these bonds must be issued within the next two years, but many states can't act without voter approval, thereby adding to the hurdles.
From both sides of the equation, the panelists ultimately conceded that each bond is different and it is vital to understand the various tax credits and terms. They urged state and local governments to undertake careful analysis before launching their own programs.
Global Conference 2013
Former Prime Minister Tony Blair, philanthropist Bill Gates and Strive Masiyiwa of Econet Wireless discuss advancing prosperity in Africa.
