Some recent press coverage has provided a misleading picture about a successful Recovery Act program, Build America Bonds (BABs).  BABs have proven to be an effective financing tool that have enabled municipalities fund critical infrastructure projects at a time when they were facing severe financing challenges. 

A New York Times piece this week, for example, argued that, “Wall Street banks are charging larger commissions for selling Build America Bonds than they do for normal municipal bonds.”  While this was true when the program first started, BABs underwriting fees have declined over time and in the past few months have fallen in line with those for tax-exempt bonds (see chart below).  There are economic reasons why BABs underwriting fees may have started out high and then come down: underwriters took on risk with a new product and had to bear start-up costs and devote resources to educate investors for their initial offerings.  Regardless of the reasons, competition appears to have lowered fees substantially.