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A federal stimulus program designed to spur public construction has taken off across the country, with agencies in 34 states spending more than $17.4 billion, according to a July 20 report from the U.S. Treasury Department.

Meanwhile, Oregon state officials waited on the sidelines. They’re still waiting.

The Office of the State Treasurer determines whether state agencies should use traditional tax-exempt bonds or Build America Bonds, which are taxable but carry a federal subsidy. The office has favored the traditional side.

鈥淔or a variety of reasons, (Build America Bonds) didn’t look like a particularly attractive deal to me this spring,鈥� said Laura Lockwood-McCall, director of the debt management division for the Treasurer’s office.
Build America Bonds come with limits on refinancing, Lockwood-McCall said. And corporate buyers need to be convinced that the new bond product is a safe and wise purchase.

Oregon wouldn’t be on the 鈥渂leeding edge鈥� of the program, Lockwood-McCall said. 鈥淭here are pioneers and settlers,鈥� she said. 鈥淲e’re happy to be settlers.鈥�

It took the tiny Dayton School District to hoist the pioneer banner for Oregon. The 1,000-student district sold Build America Bonds last week to pay for new school outbuildings.

Superintendent Janelle Beers said she was wary of the new program, but jumped in because it would save the district money. 鈥淚 didn’t know what I was getting into when we started,鈥� Beers said. 鈥淲e wanted to make sure it was a program that would stick around.鈥�

The district sold about $9 million in Build America Bonds and $2.2 million in tax-exempt bonds that will pay for new buildings at the elementary, middle and high schools.

By using the new program, Dayton will save nearly $1.3 million over the 25-year life of the bonds, Beers said. The cost to district residents is $1.74 per $1,000 of assessed property value, compared with $2.09 with traditional bonds.

The savings is enough, in some cases, for public agencies to take on building projects that wouldn’t make financial sense otherwise. That’s why construction groups pushed for including the Build America Bonds, which can be used only for capital projects, in the stimulus package.

鈥淚t makes it a little easier to finance construction for a wider range of folks,鈥� said Brian Turmail, spokesman for the Associated General Contractors of America. 鈥淚t tips the scale slightly in favor of funding for construction projects.鈥�

Interest rates constantly change, and with them the break-even point for using Build America Bonds versus tax-exempt bonds, said Javier Fernandez, senior vice president with bond underwriting firm D.A. Davidson & Co. Right now, it’s a better deal for agencies with good ratings to use Build America Bonds for bonds with lives longer than 12 years. For five-year bonds, for example, tax-exempt bonds make more sense.

The math could change very quickly, Fernandez said. 鈥淚f, all of a sudden, there’s a shift in the market and the taxable interest rates go through the roof overnight, you’re entering into a whole new world.鈥�

On the other hand, he said, if rates drop dramatically, taxable Build America Bonds could become attractive to nearly everyone.

Lockwood-McCall said she’s watching closely. The state could use Build America Bonds for upcoming bond sales for the Oregon departments of Transportation and Energy.

鈥淲e’re not going to be the first off the block,鈥� she said. 鈥淏ut we’re going to get the best deal.鈥�