Under the Build America Bonds program, state and local governments may issue subsidized bonds in 2009 and 2010. Build America Bonds, or “BABs,” are municipal bonds that could otherwise be issued as tax-exempt bonds, but which the issuer elects to treat as taxable under Section 54AA of the Internal Revenue Code. There is no volume limitation on BABs during the two designated issuance years, and BABs can be used to finance virtually any governmental purpose for which state and local governments can otherwise issue tax-exempt municipal bonds, subject to the same limits on private business use, private business payment, and security that apply to tax-exempt municipal bonds. For example, proceeds from an issuance of BABs can be used to finance public buildings, schools, roads, transportation infrastructure, government hospitals, public safety facilities and equipment, water and sewer projects and other public utilities, environmental projects, energy projects, and governmental housing projects, to name just a few.
Since the inception of the Build America Bonds program, the most common BABs issued have been general obligation bonds, and the majority of BABs issued have received a rating of “AA” or better. The proceeds from the issuance of BABs have been used to finance public facilities for a variety of purposes, including transportation, utilities, education, and health care.
As of October 2009, issuers had closed 466 issuances of BABs totaling approximately $43 billion in principal amount, with a median principal amount of $20 million. The following table shows the total principal amount of BABs issued each month since the inception of the program: