Grassley says House bill expands profits for big Wall Street banks

M E M O R A N D U M

TO: Reporters and Editors
RE: House action today for Build America Bonds
DA: Thursday, March 4, 2010

Senator Chuck Grassley issued the following comment about House action today on “jobs” legislation passed last week by the Senate.

The House bill expanded the Build America Bonds provision to the four tax-credit bonds in the Reid bill, up from the two tax credit bond provisions originally passed by the House. The House bill provides a 100-percent payment from the U.S. Treasury for thetwo tax-credit bonds related to schools, and a 70-percent payment from the U.S. Treasury for two energy tax-credit bonds, both of which are more generous than the Senate bill.

The House bill spends $4.6 billion, not offset, and the Senate bill spends $2.5 billion, notoffset.

Senator Grassley’s comment:

“With its vote today, the House has one-upped the Senate majority on directing more money to profits for big Wall Street banks, while claiming to pass legislation to create jobs. The House bill creates new opportunities for underwriters to skim the creamby expanding the Build America Bonds provisions that were in Senator Reid’s bill.“Build America Bonds are 37 percent more lucrative for banks and financialadvisors than other tax-exempt bonds, according to Bloomberg News, and taxpayersdeserve to know that a major portion of the outlay will go to investment banks, ratherthan infrastructure. The truth is, school kids and green energy efforts get what’s left afterthe bank fees are paid and city and state governments have released the funding.”

Senator Grassley’s inquiry of Goldman Sachs regarding Build America Bonds:

Grassley Asks Goldman Sachs About Underwriting Fees for Build America Bonds

WASHINGTON – Sen. Chuck Grassley, ranking member of the Committee onFinance, today asked Goldman Sachs whether it would collect double-digit underwritingfees for participating in a newly expanded Build America Bonds program, as included inthe “jobs” bill promoted by the Senate Democratic leaders and passed by the Senatetoday.

Grassley’s inquiry came after Goldman Sachs published a newspaper ad insupport of the Build America Bonds program, identifying itself as “one of the principalunderwriters.” Earlier, an analyst was quoted in the media saying that the generousamount of federal money available in the program gives states and cities leeway to spendgenerously on underwriting fees.

“I’m interested in finding out whether the big Wall Street investment banks beingso involved in, and profiting from, the Build America Bonds program siphons off a lot oftaxpayer dollars that are meant to help cities and states,” Grassley said.

The text of Grassley’s letter today follows.

February 24, 2010

Mr. Lloyd C. Blankfein
Chairman and Chief Executive Officer
The Goldman Sachs Group, Inc.
85 Broad Street
New York, NY 10004

Dear Mr. Blankfein:

I was interested to see your company’s full-page advertisement in support of BuildAmerica Bonds in yesterday’s edition of the Politico newspaper that stated that GoldmanSachs is “one of the principal underwriters…” of Build America Bonds. The “jobs bill”that passed the Senate today contained an expansion and an increase in the subsidy levelsof the Build America Bonds program. This increased subsidy allows non-taxpayingentities to receive a check from the American taxpayers equal to either 65 percent or 45percent (depending on the amount of bonds issued) of these non-taxpaying entities’interest costs on Build America Bonds. The American Recovery and Reinvestment Actof 2009, more commonly known as the stimulus bill, allowed non-taxpaying entities toreceive a check from the American taxpayers equal to 35 percent of these non-taxpayingentities’ interest costs. The President has proposed in his most recent budget for nontaxpayingentities to receive a check from the American taxpayers equal to 28 percent ofthese non-taxpaying entities’ interest costs.

A November 27, 2009, Bloomberg article by Jeremy R. Cooke stated that:

“States and municipalities paid an average 37 percent more to investment banks forunderwriting Build America Bonds than for handling tax-exempt sales since offerings ofthe subsidized taxable debt began in April…. ‘The large subsidy gives them leeway tocharge more because the issuer probably cares less about the underwriting fee,’” saidMatt Fabian, managing director and senior analyst at Concord, Massachusetts-basedindependent research firm Municipal Market Advisors. ‘They shouldn’t care becausefederal taxpayers will cover the difference. As a federal taxpayer, I’m highlyconcerned.’”

I, too, am concerned that American taxpayers are subsidizing larger underwriting fees forWall Street investment banks, including Goldman Sachs, as a result of the Build AmericaBonds program. I have raised concerns about the increased subsidy levels in the BuildAmerica Bonds program that passed the Senate today.

As “one of the principal underwriters” of the Build America Bonds program, pleaseanswer the following questions:

1. How much in total underwriting fees has Goldman Sachs collected to date onBuild America Bonds’ issuances?

2. How has Goldman Sachs determined its underwriting fees on Build AmericaBonds’ issuances?

3. Are these underwriting fees larger than the underwriting fees that Goldman Sachshas charged on tax-exempt bond issuances? If so, how much larger are theseunderwriting fees?

4. Has Goldman Sachs received any money, in addition to the underwriting fees, inconnection with the Build America Bonds program?

5. Does Goldman Sachs expect to receive additional underwriting fees if the BuildAmerican Bonds expansion and subsidy increase that passed the Senate today isenacted into law?

Thank you in advance for your prompt response to these questions.

Sincerely,

Charles E. Grassley
Ranking Member

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