State and municipal governments in the USA are so spendthrift and broke that they need subsidies to shoulder the cost of their transportation infrastructure. But the subsidies are ending..or, as
noted yesterday, maybe not. In the meantime, the
complaints are mounting:
U.S. state and local governments face a surge in borrowing costs after lawmakers refused to renew the federally subsidized Build America Bonds program used to fund infrastructure projects and create jobs.
Lawmakers had considered the $858 billion deal on the so-called Bush tax cuts the best vehicle for extending BABs, which expire with the stimulus plan at year end. The U.S. House of Representatives killed the possibility of an extension when it approved the deal late Thursday. President Barack Obama signed it into law on Friday.
With the end of BABs, the $2.8 trillion municipal bond market could see depressed prices and greater volatility. The bonds made up more than a quarter of all new municipal debt sold this year and have been largely attributed with restarting stalled municipal credit markets.
New York City, for example, has issued $8.9 billion of BABs, saving about $50 million a year in interest costs.
"We are still in a recovery period, it helped us access badly-needed capital, capital that we needed to reinvest in our infrastructure, and we certainly have benefited from the BAB program in New York City," said New York City Comptroller John Liu.
Issuers like California, the single biggest BABs seller at about $14 billion, receive federal rebates equal to 35 percent of the bonds' interest costs. Most issuers hoped the program, which debuted in April 2009, would be extended for a year or two beyond its December 31 expiration.
By the way, Reuters betrays its sycophancy to the all-beneficent State with its headline to the above story: "U.S. faces tough future without Build America Bonds". Instead, how about: "U.S. faces tough future when near-bankrupt nation-state has to bailout political subdivisions."
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