April 3, 2009 Build America Bonds and School Bonds The United States is facing the most severe financial crisis in generations. Extraordinary challenges require extraordinary action by our government to ensure the economy gets back on track and that millions of Americans get back to work. The American Recovery and Reinvestment Act of 2009, along with the Financial Stability Plan, are critical steps. In just two months, the Obama Administration, in conjunction with Congress, has enacted legislation to create or save 3.5 million jobs; give a tax break to 95% of working families; and has put forward detailed programs to address falling home prices, frozen credit markets, weak bank balance sheets and legacy assets. Creating the conditions for an economic recovery also requires addressing the challenges facing state and local governments in the midst of the current economic climate. Budgets are being scaled back, government jobs are being cut, and services are being curtailed. These cuts contribute to a deeper recession, while restricting access to services at a time when the need for them is greatest. Turning things around requires innovative thinking. Today Treasury announces two new, innovative bond programs to help states pursue capital projects. This funding means much needed infrastructure projects can begin to revitalize our communities while putting Americans back to work. BUILD AMERICA BONDS Traditionally, tax-exempt bonds provide a critical source of capital for state and local governments, but the recession has sharply reduced their ability to finance new projects. Supplementing this existing market, the Build America Bond program is designed to provide a federal subsidy for a larger portion of the borrowing costs of state and local governments than traditional tax-exempt bonds in order to stimulate the economy and encourage investments in capital projects in 2009 and 2010. HOW BUILD AMERICA BONDS WORK This feature will make Build America Bonds attractive to a broader group of investors, and therefore create a larger market than typically invest in more traditional state and local tax-exempt bonds, where interest rates, due to the federal tax exemption, have historically been about 20 percent lower than taxable interest rates. They should be attractive to investors without regard to their tax status or income tax bracket (e.g., pension funds and other tax-exempt investors, investors in low tax brackets, and foreign investors). GUIDANCE TO STATES ON BUILD AMERICA BONDS
Finally, the Notice solicits public comments on all of the plans for this program. SCHOOL BONDS The guidance that Treasury is issuing today allocates the national bond volume authority for these school bond programs among the states and certain large local school districts pursuant to statutory formulas. These volume cap allocations are important to enable State and local governments to use these low-cost borrowing programs to finance school projects to promote economic recovery and job creation. For Qualified School Construction Bonds, the guidance divides the $11 billion national bond volume authorization for 2009 among the states and 100 largest local school districts based on Federal school funding. For Qualified Zone Academy Bonds, the guidance divides the $1.4 billion bond national bond volume authorizations for each of 2008 and 2009 among the states based on poverty levels.
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