During the Great Recession, Congress temporarily authorized a direct pay bond program known as Build America Bonds, or BABs. Interest paid on these direct-pay bonds is taxable to the bondholder, so the interest rate is higher than a tax-exempt rate. The federal government, however, pays an amount equal to a percentage of the interest payable on the bonds directly to the issuer of the bonds, effectively reducing the financing cost of the project funded by these bonds.

Why We Care

The subsidy reduces the cost of financing infrastructure for state and local governments, while the taxable rates broaden the purchaser base by attracting new investors who would not otherwise be interested in tax-exempt bonds. By creating a new iteration of direct-pay bonds, Congress and the administration can add an additional, efficient, and tested financing tool for state and local governments.

NABL Stance

Congress and the Administration should create a new form of direct pay bonds to expand purchaser bases and provide a new financing tool to our communities. NABL endorses bills on a case-by-case basis but is supportive of efforts to create new direct pay bond programs. For further inquiries, email advocacy@nabl.org.