Bond Accountability Commission 2 Recommendations Page 128
The following is a comparison of yields as of March 15, 2010, for representative AA-rated municipal debt, which reflects comparable yields under the QSCB program prior to the enactment of the federal legislation changing the subsidy payment approach132—
In the absence of QSCBs, many municipal securities issuers have found BABs attractive and a means of reducing yields for their securities on a net basis, taking federal subsidies into account. BABs offer CMSD a lower subsidy than do QSCBs.133 The lower subsidy restricts BABs’ functionality for CMSD, but many issuers find a combined BABs/tax-exempt bond offering viable and attractive. Now that school districts, such as CMSD, have the option to elect to receive direct subsidy payments, given the higher subsidy rate for QSCBs in relation to BABs, barring
As we have noted, both market conditions and federal tax and subsidy policies have been in a significant state of flux. In addition, the heavy reliance pursuant to the prior structure of the QSCB program upon a single investor in QSCB securities, was somewhat tenuous, as that investor had made it known the investor had a limited appetite for the securities.
Since federal legislation has altered the subsidy structure to one modeled more closely on direct subsidy payments to bond issuers, as with BABs (but at a higher subsidy level), then the market reception for QSCBs can be expected to become even more favorable than it is at present. See n. 18 and accompanying text. The illustration as of a specific date does not indicate what decision CMSD should make in terms of which federal tax and subsidy program to utilize. 133
See n. 18 and accompanying text.
Published on May 14, 2014