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Recovery Act Program Providing $35.6 Billion in Financing for State, Local Governments Nationally; New York Using $750 Million for Transit Upgrades, Saving Taxpayers $46 Million
NEW YORK – As part of the Obama Administration's efforts to highlight the local impact of economic stimulus programs, Treasury's Chief Economist and Assistant Secretary for Economic Policy Alan Krueger and Congressman Charles Rangel (NY-15) visited a subway construction site in New York City supported by the Build America Bonds program. In conjunction with this event, Treasury also issued updated state by state data showing that the Build America Bonds program has provided $35.6 billion in low-cost borrowing to date for state and local governments around the country.
"Throughout the nation, Build America Bonds are funding projects that will put thousands of people to work and help rebuild our infrastructure," said Krueger. "There has been strong demand for Build America Bonds, and we're now seeing the tangible benefits of this innovative program in our communities. These bonds are allowing states and localities to access the capital market at significant savings, so they can finance important projects such as this impressive new subway station. In addition, by attracting new investors, Build America Bonds have helped reduce borrowing costs for traditional tax-exempt borrowers. This external benefit has made Build America Bonds an unsung hero of the economic and financial recovery."
Said Congressman Rangel: "These bonds give city and state governments a new, direct injection of capital to jumpstart infrastructure projects that will create jobs and improve neighborhoods and towns across our nation. Savings like these allow the MTA and other transportation systems nationwide to not only put more individuals to work, but also pursue more projects that enhance our public transportation system, moving us one step closer to the greener world we need to leave our children."
A new financing tool created by the American Recovery and Reinvestment Act (Recovery Act), Build America Bonds allow state and local governments to obtain much needed funding at lower borrowing costs. The New York Metropolitan Transportation Authority (MTA) used $750 million in Build America Bonds for the construction and improvement of the city's transit system. Because of the strong demand for Build America Bonds and the federal government subsidy, MTA estimates it saved $46 million compared with issuing traditional tax-exempt debt. As a result of this funding, the MTA has been able to reduce financial uncertainty associated with its $23.7 billion five-year Capital Program, which finances the purchase of new buses, subway and commuter rail cars, as well as the rehabilitation and maintenance of New York's extensive transit network of 491 subway and 210 commuter rail stations, nine automobile bridges and tunnels, and other infrastructure that together move 8.5 million people per day.
"The Build America Bond program allowed the MTA access to significant capital resources at a critical moment in the MTA's finances," said Patrick J. McCoy, MTA Director of Finance. "These bonds will allow the MTA to save $46 million over 30 years, and they are already helping to put thousands of New Yorkers to work maintaining, repairing and expanding the transportation network that is so vital to our region's and the nation's economy."
Build America Bonds are designed to appeal to a broader set of investors than traditional tax-exempt bonds. Under the Build America Bonds program, the Treasury Department makes a direct payment to the state or local governmental issuer in an amount equal to 35 percent of the interest payment on the bonds. This allows issuers to enjoy lower interest costs, while investors receive yields comparable to other taxable debt. By bringing in new investors, Build America Bonds have democratized municipal financing and reduced supply in the tax-exempt market, helping reduce borrowing costs on all classes of municipal debt.
Market reception for Build America Bonds has been very positive. Since the program was launched on April 3rd, 2009:
- There has been $35.6 billion in Build America Bond issuance;
- Build America Bonds now constitute about 19.5 percent of municipal bonds market; and
- A total of 39 states are participating in the program, with a total of 443 separate issues.
A complete list of issuances to date organized by state is available at http://www.treas.gov/press/releases/docs/BABStateDetails10-02-09.xls.
Source: Department of Treasury calculations. *Muni total includes traditional tax exempt bonds and Build American Bonds.