The silver lining of the Obama Pork Barrel Saga Revival arrived today when that great champion of the poor, Rep Charles Rangel (Dem) of Harlem, NY, currently under investigation for corruption, introduced the bill I recently alluded to which will remove the Alternative Minimum Taxable status of municipal "private-activity" bonds which wealthy municipal bond buyers hate. Here is the Bond Buyer's story:
Private activity bonds are what well-placed people use to fund private projects at tax-subsidized rates via municipal bonds at the local level. A lot of if not all specialized for-profit hospitals and your every-fifteen-years-new-needed-or-not local professional sports arena for your favorite team, largely owned by wealthy democrats, are built this way. But also most school construction and local water and sewer and road construction is financed through regular, non AMT, municipal bonds. The construction and everything is ALL conveniently unionized, of course, and there are lush kickbacks and "finders fees" at every stage of financing, permitting, and construction in municipal projects.
But suddenly the now archaic alternative minimum taxation of the private-activity bonds, which was used to punish mostly very wealthy republican little old ladies with billions in muni bonds, has turned out to be punishing wealthy democrats, and must therefore be squashed under the cover of "infra-structure" building to create jobs in this really lousy economy: official corruption at every phase financed by the taxpayer is suddenly "public policy".
But realistically that's the way things get done in America, especially in infrastructure. Local town and city and township and county and state government in the US is where we live and where things get done. The Federal Government is where army and navy and air force and national standards orgnizations and regulatory agencies live and get funded by everyone. The Federal level hasn't a clue what's going on or needs to go on at the local level. They respond to the prodding and courting by local officials lobbying in Washington D.C., and their elected representatives of course. And the unions.
The relaxation of the tax on the private-activity bonds means that every sports stadium including Fenway Park will now very likely be torn down and replaced with a new, earthquake-proofed and solar-powered home for every professional sports team in America. Not to mention that scads of the new questionable surgical sub-sub-sub specialty invasive procedure hospitals will be built to relieve us all of our colon polyps and pocketbooks, none of which procedures are deemed medically-necessary or payable by MediCare or other insurance carriers. Infra-structure heaven! Pork at its best.
But at the same time a lot of reasonable on-the-shelf local projects which have been planned for and for which property and/or easements have been acquired are at stake. It has been impossible for a year to fund any such projects. These are for real basics in education, roads, parks, utilities, and all manner of local facilities, including new and upgrades and retro-fits.
The interesting and defensible "emergency" aspect of this muni bond move is that many of these projects can be intiallized quickly if they were pre-planned, as many were. In a rapid growth period up to 2007 many local governments needed new facilities and planned for them but got stranded by the muni bond freeze up in 2008.
I'm going to get in on this one myself. I'll bet the muni bond fund makers at Nuveen and elsewhere are salivating today as they rush to issue new open and closed end funds to buy these higher yield beautiful new bonds to come on a state by state basis. Until the dollar re-starts its terminal decline when the current reflation effort eventually starts to work "too well", the place to be will be in state-specific AMT-free private-activity muni bonds. Then we go much more heavily to gold.
This certainly puts a positive spin on the great Pork Barrel Rush of 2009. It may work. For a while.
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