LIHU‘E — The sunset of the Build America Bonds program on Dec. 31 will mean increased borrowing costs and smaller investor pools for future county projects, county officials said. Since March 2010, the county has issued nearly $48 million in
LIHU‘E — The sunset of the Build America Bonds program on Dec. 31 will mean increased borrowing costs and smaller investor pools for future county projects, county officials said.
Since March 2010, the county has issued nearly $48 million in Build America Bonds (BAB) for various ongoing capital-improvement projects, says Wallace Rezentes Jr., county Finance Department director.
The program, passed by Congress in April 2009, is part of the American Recovery and Reinvestment Act, which is set to expire at the end of the year.
Congress is debating what the new tax policy for the country should include. However, the BAB program was omitted from tax-cut plans.
The program temporarily provided another option for government economic stimulus for new-money projects, not the refinancing of existing debt.
“This option provided taxable financing for projects that would otherwise qualify for tax-exempt funding, which provided for a different, larger investor market,” said Director of Finance Wallace Rezentes, Jr.
Under the program, the federal government subsidizes 35 percent of interest expenses that a municipality must pay to the investor. As the subsidy is removed, this will add an estimated 40 basis points of additional costs to counties, which will need to go back to the tax-free markets to raise capital.
Of the $660 billion in bonds issued by municipalities and states since April 2009, BAB constituted $164 billion. Five states accounted for 70 percent BABs: California, Illinois, New York, Texas and New Jersey.
“Our future plans will not be affected, because the county will use tax-exempt financing, which was the only option available for funding prior to the temporary authorization of BABs, which provided taxable financing,” Rezentes said.
“We do not have an immediate need for financing in the first half of 2011,” said Rezentes.
“Our goal is to move on the projects already financed. We are not aware of any pressing financial need that would require additional bond financing at this time.”
As this program winds down, there has been a large supply of issuances nationally crowding the bond market.
All of the bond markets have been weak since the institution of QE II, as shown by the iShares S&P MuniBond fund (or MUB). Prices in this market have declined approximately 8 percent since September, pushing the cost to municipal borrowers higher.
Parks and open space land acquisition $8,000,000
New landfill site acquisition $4,500,000
Lighting retrofits, parks $3,800,000
Pi‘ikoi Building renovation $3,500,000
‘Aliomanu Road erosion $3,000,000
Kapa‘a baseyard structural renovation $2,600,000
Adolescent drug treatment center land acquisition andimprovement $2,000,000
Countywide storage facility $2,000,000
Materials recycling facility (feasibility, plan, engineer,design, permit) $1,600,000
Alternative energy projects $1,500,000
Affordable housing $1,000,000
Americans with Disabilities Act access barrier removal$1,000,000
Auto shop facility and storage $1,000,000
Koke‘e Road repairs (matching funds) $1,000,000
Wailua emergency bypass improvements $1,000,000
