There are many funding programs...pick a project, find a program, get started!
by Mary Scott Nabers
CEO of Strategic Partnerships, Inc.
Through the middle of last month, $1.618 billion of these bonds were allocated for issue in Texas. They include:
- $83 million for transit improvements by the Harris County Metropolitan Transportation Authority;
- $375 million for electric, light and power improvements and natural gas utility improvements by San Antonio Electric and Gas;
- $331 million for refunding notes and university and college improvements by The University of Texas; and
- $830 million for transit improvements by Dallas Rapid Transit.
In the past, most government entities have depended on traditional tax-exempt bonds for capital projects. The Build American Bonds, however, provide funding through taxable bonds issued by state and local governments.
Here's how it works: the U.S. Treasury makes a direct payment to a state or local government issuing bonds for 35 percent of the interest payment on the bonds. This provides for smaller borrowing costs and access to more funding sources.
Just this week, the North Texas Tollway Authority (NTTA) sold $1.4 billion in bonds, $825 million of which were taxable BABs. The BABs are being issued as direct-pay debt and the U.S. Treasury will pay the NTTA 35 percent of the interest costs. Toll revenues will be used by the NTTA to make the initial debt service payment on the BABs.
While providing the rebate on interest costs to the public entity, the program also offers a tax credit to investors, at the issuer's discretion. These funds are attractive because municipal bonds historically have had a very low default rate. Additionally, schools, states, universities and transit authorities are also allowed to issue the bonds.
Two other tax credit bond programs for schools - Qualified School Construction Bonds and Qualified Zone Academy Bonds- provide funding options for public school construction projects through interest-free borrowing. Those who buy the bonds are offered a federal tax credit that allows state and local governments to issues the bonds without interest costs.
Since the Build America Bonds program began in April, there has been $17.4 billion in bond issuance nationwide, which constitutes 16.6 percent of all municipal bond issuances. There are currently 34 states participating with a total of 178 separate bond issuances. California tops all states with 15 entities planning to issue $5.8 billion in bonds.
The Carroll school district was the first in Texas to authorize the sale of Build America Bonds. The district hopes to sell bonds worth $58 million. That, coupled with $6.7 million in traditional tax-exempt bonds, found approval in a $138 million bond package last May to provide new schools, technology improvements and the expansion of a football stadium.
The Harris County Metropolitan Transportation Authority was the first transit agency in Texas to issue the bonds, followed by San Antonio's energy utility. Some of the bonds being issued by The University of Texas System - approximately $331 million - will help restore the University of Texas Medical Branch at Galveston, which suffered severe damage last September from Hurricane Ike.
In Midland, hospital district officials have purchased property before building a new facility. Approximately $60 million has already been raised for the tower and improvement project which is estimated to cost $175 million. The bonds to be used for the property will likely be Build America Bonds, according to local officials.
With issuers realizing a savings from lower borrowing costs and buyers receiving a federal tax credit, the bond programs are proving to be very popular.
