Build America Bonds

Build America Bonds (BABs) are taxable municipal bonds that were authorized under the American Recovery and Reinvestment Act of 2009 (ARRA) that President Obama signed into law on February 17, 2009. BABs were an alternative to tax-exempt bonds for state and local governments that were issued in 2009 and 2010. The interest on BABs is taxable to investors. As a result, the nominal interest rate on BABs is about the same as interest paid by non-state and local government borrowers, such as corporations. To make up for the benefit associated with the tax-exemption, the federal government provided two options to BAB issuers to lower their net interest costs.

With direct-pay BABs the Treasury Department provides borrowers with cash subsidy payments equal to 35 percent of their interest costs.

With tax-credit BABs, investors receive the right to a federal income tax credit equal to 35 percent of their BAB interest income. However, all BAB issuance has been direct pay.

BABs could not be used for refundings, working capital, private activities or 501(c)(3) organizations.

The BAB program expired on December 31, 2010.

Taxable vs. Tax-Exempt Issuance, 2000 – 2010

BAB Issuance by Use of Proceeds, 4Q ’10

BAB Issuance as a Percentage of Total Long-Term Municipal Issuance, 4Q ’10

Negotiated vs. Competitive Deals, 4Q ’10

BAB Issuance, Years to Maturity, 4Q ’10

States by Number of Deals and Deal Size, 4Q ’10

15 Largest Deals, 4Q ’10

State Issuance by Month, 4Q ’10

Geographic Distribution, 4Q ’10

Note

• All 4Q data is from October 1, 2010 to December 31, 2010.
• Data Sources: Bloomberg, MSRB EMMA, Thomson Reuters, SIFMA

Credits

SIFMA Research

• Managing Director, Director of Research: Kyle Brandon
• Research Analyst: Sharon Sung

SIFMA Municipal Division

• Managing Director, Assistant General Counsel, Co-Head: Leslie Norwood
• Managing Director, Co-Head: Michael Decker
• Manager (Advocacy): Lynne Funk