Sequestration may lead to $255MM in BABs subsidy cuts

Posted by Peter Orr on Sep 18, 2012

- On of my few shortcomings is that I can't predict the future.  - Lars Ulrich

Back in Feb 2010 I warned of the mistake public finance folks were making in simple comparisons of after-subsidy BABs cost versus traditional Boring Old Bonds (BOBs) yields. It turns out with sequestration a very real possibility in just over 3 months that risk is indeed tangible: BABs carry a federal fiscal policy (FP) risk that BOBs simply don’t. The Bondbuyer reports that sequestration could cut federal BABs payments by $255 million.

Hopefully a deal can be reached which averts actual missed payments - states and munis are in no condition to be dealing with a surprise 30%+ increase in borrowing costs - but this certainly doesn’t help the cause for those who think we use some variant of a new BAB program to help address our currently decaying infrastructure.

Anyone hazard a guess on how BAB subsidy cuts would be allocated?