Build America Bonds: Implementing an Efficient and Effective Subsidy for State and Local Borrowers

Abstract

In response to fiscal challenges facing state and local governments in the financial crisis, Congress, via the American Recovery and Reinvestment Act of 2009 (ARRA) created the Build America Bond (BABs) program as an innovative lower-cost borrowing tool available to state and local governments to promote economic recovery and job creation through investments in public capital projects, such as roads, bridges, hospitals, and water systems. Before state and local governments could begin to use BABs as a lower-cost borrowing tool to invest in America’s public infrastructure, the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) faced significant challenges to get the program up and running. Implementation would have several moving parts. Guidance would need to be issued. New processes would need to be developed and tested. Forms would need to be created. Extensive legal and policy decisions would need to be made. All these components were interdependent and all had to be implemented promptly in order to help struggling state and local governments facing the most severe credit crunch in decades.

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