Munis not so puny

2 March 2010 By Agnes Crane

It s no secret that U.S. state finances are a mess. Yet states bonds have held up well, suggesting few onlookers expect the federal government to let any states go under. In fact, Washington is already lending a helping hand and that could become a problem.

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The Build America Bond program was created under the federal government's 2009 American Recovery and Reinvestment Act. The program subsidizes 35 percent of the interest payment on taxable bonds used to raise funds for infrastructure projects. The program is slated to expire in 2010, though the Obama administration would like to make it permanent. Under the proposal under consideration, the subsidy would drop to 28 percent.

California issued the largest amount of general obligation bonds in 2009, according to Thomson Reuters, selling $23 billion of bonds including those under the BAB program.

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