Consider this example: Typically, local governments borrow in the tax-exempt markets. A package of $100,000 in bonds, at 4.50%, would generate $4,500 in annual interest that would be tax free to the bondholder. If that person is in the 35% tax bracket, the "loss" to the federal treasury (from Treasury's perspective), is $1,575 in avoided taxes.
BABs are taxable bonds so the interest rate is higher. The same bond as above would be sold at 6.00% interest and the bondholder would receive $6,000. However, he would pay $2,100 to the federal government in taxes. To offset the higher interest costs, the federal government has agreed to subsidize the borrowing rate of local issuers by 35% to entice them to sell BABs. Taxing the interest offsets the subsidy and thus the impact to the federal deficit is substantially less than with traditional tax exempt bonds, exactly the opposite of the point made by Heffernan.
More important, however, is that the cost to the city to sell the bonds is reduced from 4.50% to a net 3.90%, lowering our debt service costs by approximately 13.5%. This is why, despite Heffernan's opposition, we will sell BABs if market conditions warrant.
Next, Heffernan muses about how the project estimated at $50 million four and a half years ago, before he quit the city council, is now higher. In fact, the cost to construct the city hall itself is remarkably close at an estimated $55 million to $60 million. Despite knowing better, Heffernan, like some other self-styled "pundits," offers the false and misleading comparison of one project, the city hall, vs. five — the city hall, park, parking structure, library expansion and disaster preparedness center.