Spending cuts to delay, then reduce, Build America bond payments

WASHINGTON Fri Mar 1, 2013 6:29pm EST

U.S. President Barack Obama speaks about the sequester after a meeting with congressional leaders at the White House in Washington March 1, 2013. REUTERS/Kevin Lamarque

U.S. President Barack Obama speaks about the sequester after a meeting with congressional leaders at the White House in Washington March 1, 2013.

Credit: Reuters/Kevin Lamarque

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WASHINGTON (Reuters) - The automatic spending cuts taking effect on Friday will delay payments on Build America Bonds for three to six weeks because the Internal Revenue Service needs to reprogram its computers to adjust for the cuts, a senior administration official told reporters.

The so-called "sequester" will cut the subsidy paid on the bonds, used for infrastructure projects, by a total of about $210 million. But to put that cut into effect, the IRS has to take offline the computer systems it uses for the payments to reprogram them, the official said.

The Build America Bond program was part of the 2009 economic stimulus intended to boost state and local government infrastructure spending. It ended in December 2010.

The IRS computer overhaul means no payments will be made for three to six weeks, after which municipal issuers will begin to receive the lower payment, the official said.

Investors in the $3.7 trillion muni market generally viewed the rebate as a big help for states, cities and other issuers to make payments on the taxable debt, which has been a stellar performer in the fixed-income market.

Standard and Poor's said on Thursday that the primary credit impact of sequestration for municipal infrastructure issuers will be "a reduction of at least 5.3 percent of the federal interest expense subsidy to issuers of Build America Bonds (BABs) and Recovery Zone Economic Development Bonds, or the so-called "Super-BABs."

(Reporting by Roberta Rampton; Editing by Eric Walsh)

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