WASHINGTON — The recovery zone bond program would double in size to $50 billion and Build America Bonds could be used to do current refundings of existing BABs under a new tax and jobs bill released late Thursday evening by leaders of the House and Senate tax-writing committees.

The text of the American Jobs and Closing Tax Loopholes Act also makes clear that tribal governments for the first time would be able to sell private-activity bonds to finance water and sewer projects, and specifies that BABs could be used for capital expenditures tied to projects involving levees and other flood control projects.

That latter provision had some muni market participants scratching their heads Friday, as they thought BABs could already be used for such projects.

Democratic leaders have said they want to begin debate on the legislation as early as today, with the goal being to get it approved and sent to President Obama before the beginning of Congress’ Memorial Day recess on Friday.

However, some fiscally conservative Blue Dog Democrats have aired concerns about the bill’s cost, and the Ways and Means Committee’s ranking minority member, Dave Camp, R-Mich., called it a “deficit-extender” bill.

Several sectors of the muni market threw their support behind the bill, which contains extensions to several popular provisions of the American Recovery and Reinvestment Act, including one-year extensions to the exemption from the alternative minimum tax for all private-activity bonds and the $30 million small-issuer limit for bank-qualified bonds, as well as a two-year extension of the BAB program.

Thirteen muni groups highlighted the small-issuer provision in a letter yesterday as particularly helpful and Michael Decker, managing director and co-head of the municipal securities division at the Securities Industry and Financial Markets Association, said all of the muni provisions are “terrific.”

But Ben Watkins, the director of the Florida Division of Bond Finance, said the BAB extension would be nice only if Congress stipulates that BAB payments cannot be reduced to offset money issuers owe the federal government.

“It would be great for it to be extended, [but] it does me no good whatsoever unless the problem is fixed,” he said.

Officials with the American Association of Airport Executives highlighted the BAB and AMT extensions as particularly helpful to airports. “By extending both of those programs, it will continue to allow airports to take advantage of lower financing costs and move forward with critical infrastructure projects,” said Brad Van Dam, the AAAE’s vice president.

A summary of the legislation released by the House Ways and Means Committee and Senate Finance Committee earlier Thursday said it would extend the recovery zone bond program by one year and make a second allocation of the bonds using a new formula to ensure that no municipalities were left out.

The summary did not specify how many more recovery zone bonds would be allocated, but the legislative text revealed that an additional $25 billion would be allocated under the new formula, which ensures that every municipality would receive an allocation equal to at least its share of national unemployment as of December 2009.

Some lawmakers had argued to the Treasury Department that the original formula, which was based on net job losses, prevented their districts from receiving any allocations despite serious economic hardship.

The legislation would use a new formula in 2010 to allocate $15 billion of recovery zone facility bonds, which are a special type of private-activity bonds, and $10 billion of recovery zone economic development bonds, which are taxable bonds similar to BABs, but with higher subsidy payments equal to 45% of interest costs.

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