Build America Bonds: Good for Transportation … Good for Goldman Sachs?

Given their taxable status, Build AmericaBonds open up an entirely new investor base for municipal bonds, thushelping municipalities lower their borrowing costs. Beyond this, theprogram has led to increased investment in vital infrastructureprojects such as schools, hospitals and energy projects that createjobs in the short term. We look forward to explaining our services andthe positive economic impact of Build America Bonds to Senator Grassleyat his earliest convenience.

Dear Mr. Blankfein:

I was interested to see your company’s full-page advertisement in support of Build America Bonds in yesterday’s edition of the Politico newspaper that stated that Goldman Sachs is “one of the principal underwriters…” of Build America Bonds. The “jobs bill” that passed the Senate today contained an expansion and an increase in the subsidy levels of the Build America Bonds program. This increased subsidy allows non-taxpaying entities to receive a check from the American taxpayers equal to either 65 percent or 45 percent (depending on the amount of bonds issued) of these non-taxpaying entities’ interest costs on Build America Bonds. The American Recovery and Reinvestment Act of 2009, more commonly known as the stimulus bill, allowed non-taxpaying entities to receive a check from the American taxpayers equal to 35 percent of these non-taxpaying entities’ interest costs. The President has proposed in his most recent budget for non-taxpaying entities to receive a check from the American taxpayers equal to 28 percent of these non-taxpaying entities’ interest costs.

A November 27, 2009, Bloomberg article by Jeremy R. Cooke stated that:

“States and municipalities paid an average 37 percent more to investment banks for underwriting Build America Bonds than for handling tax-exempt sales since offerings of the subsidized taxable debt began in April…. ‘The large subsidy gives them leeway to charge more because the issuer probably cares less about the underwriting fee,’” said Matt Fabian, managing director and senior analyst at Concord, Massachusetts-based independent research firm Municipal Market Advisors. ‘They shouldn’t care because federal taxpayers will cover the difference. As a federal taxpayer, I’m highly concerned.’”

I, too, am concerned that American taxpayers are subsidizing larger underwriting fees for Wall Street investment banks, including Goldman Sachs, as a result of the Build America Bonds program. I have raised concerns about the increased subsidy levels in the Build America Bonds program that passed the Senate today.

As “one of the principal underwriters” of the Build America Bonds program, please answer the following questions:

1. How much in total underwriting fees has Goldman Sachs collected to date on Build America Bonds’ issuances?

2. How has Goldman Sachs determined its underwriting fees on Build America Bonds’ issuances?

3. Are these underwriting fees larger than the underwriting fees that Goldman Sachs has charged on tax-exempt bond issuances? If so, how much larger are these underwriting fees?

4. Has Goldman Sachs received any money, in addition to the underwriting fees, in connection with the Build America Bonds program?

5. Does Goldman Sachs expect to receive additional underwriting fees if the Build American Bonds expansion and subsidy increase that passed the Senate today is enacted into law?

Thank you in advance for your prompt response to these questions.