Stimulus Bond Program Has Unforeseen Costs (Wall Street at it AGAIN!)

They are supposed to help states and cities that are short of cash build roads, schools and bridges.
But Build America Bonds, part of President Obama’s economic stimulus plan, are also building something else: controversy.

States and cities have embraced these taxable bonds to borrow money at what they assume are favorable interest rates. The federal government pays 35 percent of the interest costs on the bonds, a huge potential saving.

But questions about this multibillion-dollar program are piling up.

For one, Wall Street banks are charging larger commissions for selling Build America Bonds than they do for normal municipal bonds, increasing the costs to the states and cities. For another, the new bonds may be priced too cheaply, enabling quick-footed investors to turn a fast profit as the prices climb, but raising interest costs for taxpayers.

Those imbalances have caught the eye of the Internal Revenue Service, which is asking municipalities whether the bonds are being priced and sold correctly. Alarmed by the uncertainty, Florida, which has sold more than $1.6 billion of Build America Bonds, has retreated from the market.

http://www.nytimes.com/2010/06/16/business/economy/16bonds.html?th&emc=th

recommended.

A New Bank to Save Our Infrastructure
October 9, 2008
by Felix G. Rohatyn , Everett Ehrlich


These are rare times of ferment in one of the most neglected fields of public policy—the nation’s infrastructure, or what used to be known as public works, including roads, mass transit, bridges, ports and airports, flood control systems, and much else. We have been confronted with spectacular and tragic evidence of the inadequacy of these facilities in the failure of the levees in New Orleans and in the collapse of the I-35 bridge in Minneapolis. More generally, a recent report by the American Society of Civil Engineers concludes that America’s infrastructure overall is close to “failing” and deserves a grade of “D.” It estimates that an investment of $1.6 trillion will be needed to bring it up to working order.

According to the report, nearly 30 percent of the nation’s 590,750 bridges are “structurally deficient or functionally obsolete” and it will take “$9.4 billion a year for 20 years to eliminate all bridge deficiencies.” “The number of unsafe dams has risen by 33 percent to more than 3,500.” Public transit facilities—including buses, subways, and commuter trains—are dangerously under-funded, even as demand for them has “increased faster than any other mode of transportation.” Current funding for safe drinking water amounts to “less than 10 percent of the total national requirement,” while “aging wastewater management systems discharge billions of gallons of untreated sewage into US surface waters each year.” Yet government investment in these vital facilities is generally held to be below the level needed simply to maintain them in their current poor state.

The gap between our economy’s need for functioning infrastructure and what is being invested in it has aroused much concern. Tired of waiting for Washington to recover the vision and energy it once devoted to the problem, Governor Arnold Schwarzenegger convinced California voters in 2006 to approve $20 billion in bonds to finance the repair and construction of roads and bridges in the state as well as public transit systems and other facilities. Together with Governor Ed Rendell of Pennsylvania and New York Mayor Michael Bloomberg, Governor Schwarzenegger has also formed a bipartisan group called Building America’s Future, which aims to find better ways to address the crisis. A second group, the Transportation Transformation Group, led by, among others, former House majority leader Dick Gephardt and General Barry McCaffrey, former US Southern Forces commander and drug czar, has a similar mission and the backing of Goldman Sachs.

more:
http://www.nybooks.com/articles/archives/2008/oct/09/a-new-bank-to-save-our-infrastructure/

Senator Christopher J. Dodd and Senator Chuck Hagel


OVERVIEW

The Dodd-Hagel National Infrastructure Bank Act of 2007 is a bipartisan measure that
addresses the critical needs of our nation’s major infrastructure systems. The legislation
establishes a new method through which the Federal government can finance infrastructure
projects of substantial regional or national significance more effectively with public and private
capital.

More:
http://dodd.senate.gov/multimedia/2007/080107_InfrastructurePacket.pdf