Bipartisan Senate Direct Pay Bill to be Introduced Today

This afternoon, Senators Roger Wicker (R-MS) and Michael Bennet (D-CO) are expected to reintroduce the American Infrastructure Bonds Act,   a bill that would create a new direct pay taxable bond in the mold on the Build America Bond but exempt from sequestration.
Similar legislation was introduced in the House last week, the Lift Act, which would also create a new direct pay bond, along with many other MBFA and BDA priorities such as the reinstatement of advance refundings and raising the BQ debt limit.  However, there are several key differences with the direct pay program.

Key Differences in the House and Senate Bond Legislation

Both bills would establish a new category of tax-preferred financing for state and local governments to be known as American Infrastructure Bonds (AIBs). Similar to the previous Build America Bonds program, AIBs would be an alternative to tax-exempt financing. Issuers would sell taxable bonds and receive a cash reimbursement from the federal government for a portion of their interest expense.
However, there are some key differences in reimbursement and sequestration limitations:

  • The Senate American Infrastructure Bond  is exempt from sequestration
  • The House American Infrastructure Bond is subject to sequestration

Reimbursement rates also vary.  Whereas the Senate AIB’s would include a flat reimbursement rate of 28%, the House AIB’s rates would vary in an effort to offset the negative impacts of sequestration.
They are based on the calendar year of issuance according to the following schedule:

  • 2020-2024: 42%
  • 2025: 38%
  • 2026: 34%
  • 2027 and thereafter: 30%

The MBFA will continue to provide updates as they become available.

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