Congress not expected to move on BABs extension, infrastructure bank until November

By Sheri Kasprzak

New York, Sept. 29 - Issuers waiting to hear about the fate of Build America Bonds might have to wait until November, said Kathleen Warner, district director for congressman Jim Himes of Connecticut, at World Research Group's fourth annual summit on taxable and tax-exempt municipal bonds in New York Wednesday.

"I don't see Congress voting on BABs before the November election," Warner said in her keynote address.

The Obama administration, Warner noted, wants to extend Build America Bonds indefinitely, but reduce the subsidy to 28%. Meanwhile, the House of Representatives would rather extend the BABs program for two years and cut the subsidy to 32% in 2011 and 31% in 2012. The Senate's proposal would extend the program for one year and provide a 32% subsidy.

The program, Warner said, has been extremely popular because the country's infrastructure is crumbling and BABs have provided struggling state and local governments with the ability to repair and replace existing infrastructure.

"There are concerns about clawbacks," she added, "but from what I've heard, payments have been in a timely manner."

The majority of issuers, about 60% according to Warner, are taking the direct-pay option for Build America Bonds, rather than the tax credit option.

Warner said that if Republicans take over Congress in the fall, it's uncertain how much stomach there will be for a program begun by Democrats, especially since the program is expensive and there has been a push to cut federal spending.

Another program the Obama administration has lauded is a government infrastructure bank, a prospect that has been enthusiastically received in theory. Even so, members of Congress have requested that the plan be fleshed out more to provide a better picture of what the infrastructure bank would provide.

Disclosure will be a continuing issue for the 111th Congress, Warner pointed out, with municipals issuers potentially being required to make financial disclosures with the Securities and Exchange Commission.

"We really have to figure out what is the appropriate disclosure for the investor, whether it be retail or institutional," she added.

As municipalities and state governments continue to tighten their belts in this economic downturn, Warner said, more scrutiny will likely be given to how municipalities are handling their debt.

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