The Oregon Legislature this month passed a resolution calling on Congress to authorize a new federal bond program that would allow states and localities to finance their infrastructure in the most efficient manner available. The non-binding measure suggested the America Fast Forward Bonds and Build America Bonds programs as models for a new initiative.
As opposed to the traditional issuance of municipal bonds, House Joint Memorial 5 noted, “the Build America Bonds program has increased the efficiency of infrastructure financing by providing a wider range of market-based options.”
The resolution said the subsidy rate for such a new federal bond program could be adjusted “so as to have a fiscally neutral effect on the federal budget in the long term” while resulting in job growth and “improved domestic infrastructure.”
Build America Bonds gave state and local governments a deeper federal subsidy (equal to 35 percent of the taxable borrowing cost) than traditional tax-exempt bonds, thus lowering net borrowing costs. The bond program, which was active from 2009-2010, funded work on public buildings, courthouses, schools, transportation infrastructure, government hospitals, public safety facilities and equipment, water and sewer projects, environmental projects, energy projects, government housing projects and public utilities.
According to the U.S. Treasury Department, more than $181 billion of Build America Bonds were issued during the two-year program, with states and localities realizing about $20 billion in present value savings from the 2,275 separate issuances of the bonds.
Similar to Build America Bonds, the America Fast Forward Bonds program, which was proposed by President Obama in 2013, would be a new class of qualified tax credit bonds. The aim of these taxable bonds would be to attract new sources of capital for infrastructure investment — including from public pension funds and foreign investors that do not receive a tax benefit from traditional tax-exempt debt.