Republicans Hate Build America Bonds, but Their Constituents Don't

By Daniel Indiviglio

At the end of the year, the Build America Bonds program will likely quietly end. It has served as a way for state and local government entities to issue municipal bonds subsidized by the federal government, making them more attractive to a wide range of investors. The program will die because Republicans are reportedly against its renewal. Whether or not the program should be renewed is controversial, but a study of the beneficiaries of this program shows that the constituents of both parties have utilized the bonds.

The report called "Reinvesting in America: The Bi-Partisan Build America Bonds" from the Center on Law and Public Finance details that districts with members of Congress from both parties have benefited from the program. Its first chart shows that the vast majority of the issuance of Build America Bonds was for projects benefiting districts of both parties:

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And remember, 59% of Congress was Democratic for the past two years, so it makes sense that their districts would obtain a larger portion of issuance than Republican districts. But according to this, 78% of Build America Bonds at least partially benefited the constituents of a Republican member of Congress.

The study found a similar relationship for governors:

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In fact, by this measure Republican-led states benefited more than those with Democratic governors.

So why do Republicans dislike the program even though their constituents appear to love it? They don't want the federal government to provide an additional subsidy to allow states to use more debt to finance new projects. Yet it seems that they don't mind if their states and districts participate in the program.

Of course, this isn't an uncommon problem. Plenty of Republican-led states and districts with Republican members of Congress took money from the federal stimulus passed in 2009. But this isn't a feature unique to Republicans. Democrats in Congress will hardly urge their wealthy constituents to pay taxes at a higher 39.5% rate for the next two years if the compromise succeeds and allows them to pay at a lower 35% rate.

Studies like this are not surprising, but illustrate a point. Many members of Congress may stand against a proposal, but don't mind if it ultimately provides benefits to their district. And really, how could they? After all, if a Democrat's district is obtaining a benefit from a program paid for by the federal government, why shouldn't a Republican's district?

Unfortunately, there's no practical way to avoid this problem -- other than denying any federal spending to benefit the states. And good luck getting Congress to agree to that! You could, alternatively, only award a program's benefits to the members of Congress who vote for a measure that passes, but that would sort of be rewarding bad behavior when Congress spends excessively.

This article available online at:

http://www.theatlantic.com/business/archive/2010/12/republicans-hate-build-america-bonds-but-their-constituents-dont/68093/