Build America Bonds: Good for Transportation … Good for Goldman Sachs?

The taxpayer-subsidized infrastructure financing program known as Build America Bonds (BABs), which would get a big boost in the Senate’s new jobs bill, has proven helpful for local transit agencies and other transportation officials seeking a way to fund big new projects during a crushing economic recession.

24mta.span.jpgNew York’s MTA sold $750 in BABs last spring. (Photo: NYT)

But
Sen. Chuck Grassley (R-IA) is now investigating whether BABs are also
lifting the fortunes of Goldman Sachs, the onetime government bailout
recipient that continues to epitomize Wall Street excesses in the eyes of many voters.

In
a letter sent yesterday to Goldman CEO Lloyd Blankfein, Grassley –
who, as the senior GOP member of the Finance Committee, has the power
to make trouble for Goldman — asked for an explanation of a Bloomberg report that cities and states are willingly paying higher commissions to big banks that underwrite their sales of BABs.

"I,
too, am concerned that American taxpayers are subsidizing larger
underwriting fees for Wall Street investment banks, including Goldman
Sachs, as a result of the Build America Bonds program," Grassley told
Blankfein, asking Goldman to reveal the total amount of fees that it
anticipates getting from the stimulus law’s creation of BABs.

Goldman
published an ad in the print edition of Politico earlier this week
hailing the Senate’s move to expand BABs and labeling itself "one of
the principal underwriters" for the program. BABs give state and local
governments a taxpayer subsidy to help cover interest payments on
infrastructure bonds, making them a more attractive financing option.

Several
states used Goldman as an underwriter to sell transportation-focused
BABs since last year, according to public disclosures and media
reports. Among them were Maryland, Washington, and New York, where the Metropolitan Transportation Authority (MTA) paid Goldman $487,500 in advising fees last spring.

Bloomberg analyzed data
last spring from the New York MTA’s initial sale of BABs and found that
the transit agency could have raised $9 million more to plug its budget
gap by lowering the negotiated yield for its bond sale by 0.1 percent.

A
Goldman Sachs spokesman responded to Grassley via Politico this
morning, saying the company is "proud" of its participation in the BAB
program. From that statement:

Given their taxable status, Build America
Bonds open up an entirely new investor base for municipal bonds, thus
helping municipalities lower their borrowing costs. Beyond this, the
program has led to increased investment in vital infrastructure
projects such as schools, hospitals and energy projects that create
jobs in the short term. We look forward to explaining our services and
the positive economic impact of Build America Bonds to Senator Grassley
at his earliest convenience.

A complete copy of Grassley’s letter follows after the jump. Continue…