BYE BYE BABS?

At least for now, Build America Bonds ("BABs") will expire on December 31, 2010. BABs were authorized in early 2009 by the American Recovery and Reinvestment Act to provide economic stimulus and to lower borrowing costs for issuers of municipal bonds. BABs provide issuers a direct payment, by the federal government, of a 35% subsidy on interest costs.

On Wednesday, December 15th, the Senate approved tax package did not include provisions for an extension of BABs. The House approved version also excluded an extension of BABs. The incoming chairman of the House Transportion and Infrastructure Committee, however announced plans to attempt to "reincarnate" BABs next congressional session.

A report by the Center on Law and Public Finance stated that over $137 billion of BABs have been issued in 1,774 separate transactions. BABs were issued in every state but Montana. Other sources state that as of December 2nd there had been over 2,000 BABs with $174 billion in proceeds. California's share is reportedly 7% of transactions and 32% by bond volume. For December 2010, it appears municipal issuance of BABs will exceed issuance of tax-exempt municipal bonds.