Build America Bonds (BABs)
Candlefocus EditorBuild America Bonds are a type of municipal bond but have a different structure than traditional municipal bonds, which makes them attractive to investors. Unlike traditional municipal bonds, Build America Bonds provide a federal subsidy to states and localities in the form of a direct payment from the federal government. This makes them more attractive to a broader range of investors, as they can enjoy the capital gains tax break of a municipal bond as well as a partial federal subsidy.
Through this Federal subsidy, BABs have generated significant amounts of capital for state and local governments. This has helped finance infrastructure projects that would have been unaffordable before. It has allowed public funds to keep up with ever-growing needs for higher-speed internet and transportation infrastructure. The funds have also been used to finance green energy projects, such as the installation of solar power systems in public schools. Furthermore, the funds have gone towards improving agriculture, conservation, and rural areas of the nation.
Build America Bonds have also created an opportunity for government entities to attract investors even during times of economic stress. By offering investors these bonds, governments can borrow funds at competitive and often lower rates than traditional municipal bonds. This lets state and local governments finance capital improvement projects and better manage their budgets.
Though the Federal subsidy of BABs was set to sunset in 2010, the 2015 transportation act reauthorized the program through 2020. Currently, most BABs are issued by localities such as cities, towns, counties and other states but some have also been issued by private entities such as universities, hospitals and other non-profit organizations.
Overall, Build America Bonds have been instrumental in allowing state and local governments to access capital and finance essential infrastructure improvements and green energy projects. Not only have they helped create jobs and stimulate the economy, they have also allowed localities to improve services, reduce costs and ensure their infrastructure stays up to date.