An extension of the Build America Bond program was omitted from a compromise that President Barack Obama struck with congressional leaders to prolong tax cuts enacted in 2001 and 2003, White House officials said.
The president said last night that he agreed to extend all expiring income-tax cuts two years, as Republicans wanted, in return for advancing jobless benefits and cutting payroll taxes. The Build America program, which subsidizes state and local borrowing costs, was left out, according to two officials briefed on the plan who spoke on condition of anonymity because the details haven't been released.
The omission hinders efforts to prolong the program, which is set to expire at year end. More than $174.1 billion of the taxable securities have been sold since April 2009, making them the fastest-growing segment of the $2.8 trillion municipal market, according to data compiled by Bloomberg. The U.S. pays 35 percent of the interest on the debt.
“We would be disappointed if the bonds didn't make it into a tax package,” Janet Kavinoky, director of infrastructure and transportation for the U.S. Chamber of Commerce, said today in a telephone interview. “The bonds have done a lot of good for communities who have not had the capacity to keep infrastructure projects going.”
Significant Challenges
Brian Turmail, spokesman for the Arlington, Virginia-based Associated General Contractors of America, said the bonds are crucial to the nation's recovery from the longest
recession since the Great Depression.
“That we would make it harder for private-sector dollars to flow into infrastructure projects just astounds the mind,” he said in a telephone interview. “This is a key part of addressing what we consider to be pretty significant infrastructure challenges that our nation is facing and will, long-term, undermine our economic competitiveness.”
The construction industry has lost 5,000 jobs since October, driving unemployment in the sector to about 19 percent, the group said in a Dec. 3 statement.
Build Americas were created by Obama's 2009 economic- stimulus plan. Senate Finance Committee Chairman Max Baucus, a Montana Democrat, included an extension in a bill to keep middle-income tax cuts passed under President George W. Bush. That bill was defeated Dec. 4 in the Senate, opposed by some lawmakers because it would have let taxes on the wealthy increase.
Bonds in Limbo
The fate of the Build America program, which Obama has sought to extend, may be determined by a six-member panel headed by Treasury Secretary Timothy Geithner, the White House officials said. Panel members were appointed by Obama and congressional leaders to negotiate tax issues.
The bonds have bolstered the economy, Baucus said in an interview in the Capitol. He said he didn't know whether the program would be in a final bill, which he said would likely be the only tax measure considered before the new Congress is sworn in next month.
“There are provisions that are not yet negotiated, and that's one of them,” he said.
Because they carry taxable rates comparable to similar corporate debt, state and local issuers have marketed Build America securities to pension funds, offshore investors and others who don't typically buy municipal securities. That has curbed the supply of tax-exempt bonds and buoyed prices.
Hurrying to Market
Concern that the program would lapse has weighed on the tax-exempt bond market since an end may boost the amount of money state and local governments borrow with tax-exempt debt. Issuers have also rushed to sell Build America securities.
With Republicans poised to take control of the House of Representatives in January, local governments, banks and other advocates are pressing to have the program extended in the current, so-called lame-duck session. Under the Baucus bill, it would have been extended for a year with the subsidy cut to 32 percent of interest costs.
Republicans -- including U.S. Representative David Camp of Michigan, who is in line to become chairman of the tax-writing Ways & Means Committee -- have been critical of spending under Obama's $814 billion stimulus package. Democrats, who now control the House, have passed measures to prolong the Build America program, only to see the bills stall in the Senate.
Obama spoke about the tax compromise in Washington after a meeting with Democratic congressional leaders yesterday. They and the Republican leadership still have to sell the plan to their caucuses. Obama called it a “framework” for a deal.
Allowing the Build America program to expire “would just be another blow to the already embattled construction sector of the economy,” the Chamber of Commerce's Kavinoky said.
