Mid-summer, I wrote that the city of Newport Beach intended to use Build America Bonds (BAB) to finance the new City Hall project, and that in doing so the city was increasing the size of the federal deficit because the federal government subsidized 35% of the interest payments on BABs. In response, Mayor Keith Curry indicated that I was wrong because the federal government assumed that its 35% interest rate subsidy would be repaid because buyers of those bonds would pay income tax on the taxable interest paid on BABs.
At its Nov. 9 City Council meeting, the city approved issuing bonds totaling nearly $128 million to pay for the new City Hall project, much of which are BABs. At that same meeting, the council approved a budget amendment, which provided for a federal government payment to the city for a "2010 Federal BAB Subsidy" of $1,263,175. That is the first year of federal BAB interest payments to the city, which continue over the 30 year repayment period for these Newport Beach BABs.