Build America Bonds Encourage “Buy Now, Pay Later” Mentality
As part of the 2009 stimulus package, President Obama and Treasury Secretary Timothy Geithner created a new program to subsidize municipal bonds. Unlike traditional municipal bonds, Build America Bonds are not tax-exempt, and come with a guarantee that the federal government will pay roughly one-third of any interest accrued.
This is extremely enticing to local governments searching for a way to keep spending and put the costs on others, and extemely beneficial for Wall Street bond underwriters.
Pennsylvania is the 9th highest participant of Build America Bonds in the nation, with over $2 billion in bonds being issued thus far. Other states near the top of the list include debt-laden California, New York, and New Jersey.
Not only is the concept financing local government debt with federal tax dollars rather questionable, but it encourages the very behavior that led to the problems we see in cities such as Harrisburg and Allentown, both of which are facing bankruptcy from runaway debt.