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December 16, 2010 at 11:00 AM
SIFMA released its 2011 Municipal bond Issuance Survey on Wednesday. Some of the findings are a bit murkier than usual because of uncertainty at the time the survey was conducted, from Nov. 16 to Dec. 1, over whether the taxable municipal Build America Bonds (BAB) program would be extended.
To Extend or Not To Extend?
The taxable BAB program was not extended in the Senate’s tax compromise bill, The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, according to The Bond Buyer. That means that the forecasts for rates and muni issuance may change somewhat from the three forecasts in the SIFMA report. Indeed, “One panelist noted that the failure to extend certain programs (BABs, the AMT holiday and bank-qualified minimums) would drive yields on tax-exempts upward,” the report stated.
SIFMA noted that: “Three-quarters of the panelists assumed the Build America Bonds (BABs) program will be extended past 2010, although at a lower subsidy rate (32 percent),” although the subsidy range was 25% to 34%, the report states. Participants also assumed, SIFMA states, that the “bank-qualified limit” for localities to issue “qualified” bonds—those that can convey favorable tax treatment for banks—“will be set to $30 million permanently and the alternative-minimum tax (AMT) holiday will be continued.”
The AMT holiday is part of the “American Recovery and Reinvestment Act” and allows “private activity” municipal bonds to be exempt from the AMT, according to The Bond Buyer, which says that the exemption from the AMT expires at year end.
The SIFMA report included an alternate forecast, without the BAB program, and for this article that is what we refer to.
