Many state and local government entities are finding themselves in a difficult situation as a result of the current recession. For example, the availability of tax-exempt bonds, which have traditionally provided a critical source of financing for capital projects, has sharply declined. However, one alternate source of funding for projects like government hospitals might be the Build America Bond program of the American Recovery and Reinvestment Act of 2009 (ARRA).

Build America Bonds are a new financing tool for state and local governments. The bonds, which allow a new direct federal payment subsidy, are taxable bonds issued by state and local governments that will give them access to the conventional corporate debt markets. At the election of the state and local governments, the Treasury Department will make a direct payment to the state or local governmental issuer in an amount equal to 35 percent of the interest payment on the Build America Bonds. As a result of this federal subsidy payment, state and local governments will have lower net borrowing costs and be able to reach more sources of borrowing than with more traditional tax-exempt or tax credit bonds. For example, if a state or local government were to issue Build America Bonds at a 10 percent taxable interest rate, the Treasury Department would make a payment directly to the government of 3.5 percent of that interest, and the government's net borrowing cost would thus be only 6.5 percent on a bond that actually pays 10 percent interest.

To explore the feasibility of utilizing the Build America Bond program for government hospitals, please contact REDW's healthcare service experts and .