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Taxpayers Gored Again

 One more Federal Program is being promoted for extension by the Obama Administration.  The program is the Build America Bonds and here is a description from the Wall Street Journal:

The Obama administration responded with a new kind of taxable bond that offered a 35% federal subsidy on the interest rate. Washington designed the subsidy to appeal to investors such as pension funds and overseas buyers who don't buy traditional municipal bonds because they can't take advantage of their tax-free status. The federal subsidy allowed states and cities to offer these investors an attractive return. The catch: Congress authorized the program only through 2010, to allay concerns that BABs would become a permanent bailout.

States and cities jumped deeply into this new market. California alone has issued some $21 billion in BABs, mostly as a substitute for its general obligation debt to support everything from school construction to sewer projects. New Jersey has used up to $500 million to recapitalize its depleted transportation trust fund. Columbus, Ohio, issued $131 million in BABs to start construction of a downtown convention hotel. And in Dallas, Texas, when no private operator would finance a new convention hotel, the city went ahead with a government-subsidized hotel, courtesy of $388 million in BABs.

Now dozens of governments and other municipal issuers (like New York's Metropolitan Transportation Authority and the University of California) have hired lobbyists to push Congress to extend BABs beyond this year. And in its 2011 budget, the Obama administration proposed making Build America Bonds permanent, with an interest-rate subsidy of 28%.

The taxpayers do not need another program (think Fannie Mae & Freddie Mac) that is likely to blow-up and lead to new requests for a bail-out.  Even more importantly, we should not be encouraging fiscal misbehavior in states like California that are on the verge of bankruptcy.  This is a further example of the Federal Government intervening in the economy to the ultimate detriment of all.

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