“Build America Bonds” Having a Big Week — Is the Transport Bill Next?

With the nation's highway trust fund facing a $200-billion-plus shortfall over the next 10 years, finding new sources of revenue for transportation innovation is one of the toughest long-term challenges that Congress faces. One possible solution, however, lies no further than this week's business pages.

Build America Bonds are helping pay for an extensions of the D.C. Metro, shown above. (Photo: Reston Chamber)

Washington D.C. transportation officials are selling investors $853 million in municipal bonds this week to help pay for a long-sought extension of the Metro transit network to Virginia's Dulles airport.

Nearly half of the amount being marketed this week is in Build America Bonds (BABs), a new local-financing method created by the economic stimulus law.

The BABs, spearheaded on the Hill by Sens. Ron Wyden (D-OR) and John Thune (R-SD), allow local governments to issue municipal bonds that provide extra interest for private investors, thanks to federal tax credits or subsidies.

The concept promises a win for cities and towns that can attract interest in their infrastructure improvements as well as for Washington, which wins by subsidizing a municipal bond market that enjoys a historically low default rate -- though the recession has made "munis," as they are known, a bit less safe than usual.

The D.C. Metro BAB sale comes in the same week as an $825 billion BAB deal by North Texas Tollway Authority and follows a successful $750 million BAB offering by New York's Metropolitan Transit Authority.

Could BABs help Congress solve the funding puzzle as it works on a new long-term transportation bill? Wyden thinks so. In a Senate floor speech last month, he said:

The bonds generally must be supported by new or stronger highway tolls,
giving them a side benefit of encouraging drivers to migrate to
available transit options. And while the White House is staunchly opposed to raising the gas tax in a recession, it has embraced new ways to encourage private involvement in local infrastructure.