Alert October 19, 2011

IRS Okays California BABs Remarketing

The Internal Revenue Service recently issued a private letter ruling to the State of California that permits the State to remarket $132 million of taxable Build America Bonds (“BABs”) issued in 2009 and 2010.  California is the first state to remarket outstanding BABs since the legal authorization for BABs expired at the end of 2010.

BABs represent one of the more successful programs authorized under the American Recovery and Reinvestment Act of 2009.  Under the program, the federal government generally pays a direct subsidy of 35% of the interest costs to a bond issuer, thereby lowering the borrowing cost for state and local infrastructure financing.  Over $180 billion in BABs were issued during the two-year life of the program. Many politicians, including President Obama, have proposed reinstating the BABs program.