According to the Center, Rep. Pete Sessions (R-Texas) “wrote Transportation Secretary Ray LaHood in February, urging his cabinet agency to give ‘full and fair consideration’ to the city’s request for $81 million in stimulus money, according to a copy of the letter obtained by the Center for Public Integrity. Ironically, his letter suggested the project would create jobs, undercutting the very public argument he has made against the stimulus. ‘Carrollton’s project will create jobs, stimulate the economy, improve regional mobility and reduce pollution,’ the lawmaker wrote.”

Sen. John McCain (R-Ariz.), too, wrote a letter asking for Department of Transportation funds for Phoenix Sky Harbor International Airport: “These funds are for a specific purpose that will usher into our community a much more tightly knit transit system alternative to the private automobile. … The TIGER discretionary grant deserves your consideration within existing rules, regulations, and ethical guidelines,” he wrote.

Even Rep. Michelle Bachman (R-Minn.), founder of the Tea Party Caucus, wrote “more than a half dozen letters to federal agencies on behalf of proposed stimulus grants, including one to the Transportation Department for the St. Croix River Crossing Project that she argued ‘would directly produce 1,407 new jobs per year while indirectly producing 1,563 a year – a total of 2,970 jobs each year after the project’s completion.’”

The list goes on and on.

Correction: This post initially identified the lawmaker who wrote to Secretary LaHood as Sen. Jeff Sessions (R-Ala.). In fact, it was Rep. Pete Sessions (R-Texas). We apologize for the error and urge the Republican caucus to diversify its nomenclature.

Presented with a pair of statements summarizing the two parties’ basic economic messages (“The Democratic stimulus package has created or saved more than three million jobs. The only answer from Republicans is voting against extending unemployment benefits and protecting companies that send jobs overseas” versus “Republicans are trying to protect small businesses, which are the engine of our economy. Democrat tax increases and stifling regulations on small businesses are strangling the primary source of new jobs in America”) independent voters picked the Republican position by a 19-point margin, 56 percent to 37 percent.

Ayres, whose full memo can be found here, signed off by writing, “We look forward to seeing you in Kansas City and sharing the full presentation of our findings.”

The CEA estimates the number of jobs saved through a GDP model, but the report also provides direct statistics on how the Recovery Act helped families and workers. The report notes that 22 million people, 14 percent of the labor force, have directly benefited from unemployment benefits provided in the  Recovery Act, for instance; 50 million retirees and others received $250 one-off assistance payments; and millions more benefited from a temporary boost to the earned income tax credit.

Holding the size of the labor force steady, without those 2.2. million jobs, the current unemployment rate would stand at 11.8 percent. Of course, higher unemployment would discourage workers from looking for jobs, etc., and it is impossible to project what the unemployment rate would have been if the government had not passed the Recovery Act. Regardless, the size of its benefit remains considerable.

It remains one of the most popular ideas in the White House’s economic stimulus law: Helping states and localities weather the credit crisis by selling a new breed of taxpayer-subsidized municipal debt to investors. School districts, transit agencies and water authorities in more than 40 states have won by lowering their borrowing costs. Lawmakers and the Obama administration have won by touting unprecedented demand for securities with the feel-good name Build America Bonds (BABs).

[Economy1] But even as the program gains new converts and sails toward a three-year extension, approved by the House last week, hiccups have emerged to little notice outside the financial press. Some of those questions stem from wins scored off the bonds’ rapid rise by Wall Street players, including banks that commanded higher fees to underwrite BABs and traders who made quick profits selling them in the secondary market. Another sticking point arose earlier this month, when Florida suspended its BAB sales amid concerns that the Internal Revenue Service could withhold its promised subsidy for the bonds from states with outstanding Medicare or Medicaid obligations.

“We’ve always been concerned about the federal government creating a taxable bond option, or BABs, and using it to achieve other objectives … in terms of withholding payments that may be due a state or local government,” said Government Finance Officers Association (GFOA) executive director Jeffrey Esser, whose group represents municipal financiers. “We’re also concerned that, given the bad fiscal situation the federal government is in, they’ll make promises to provide these subsidies, [then later] be forced to cut back.”

BABs are structured to offer local issuers a federal repayment for 35 percent of the interest on their debt, which can also be taken by investors in the form of tax credits. The Congressional Budget Office estimated last year that BABs would cost the Treasury $4 billion over 10 years, but the bonds have defied all expectations — with nearly $80 billion worth flying out the door since the stimulus passed, the program is now projected to add $30 billion to the deficit, a more than sevenfold increase.

State and local bond issuers interviewed by TWI agreed that such popularity is an indisputably good thing. Yet several others emphasized that climbing aboard the BAB juggernaut requires vigilance and awareness of the risks involved, of which three in particular loom large.

Higher Underwriting Profits

When Goldman Sachs placed an ad in Politico last month trumpeting its status as a leading underwriter of BABs, Sen. Chuck Grassley (R-Iowa) went on the offensive. After firing off a letter to the bailed-out bank’s CEO, Grassley continued to hammer the program for allowing big banks to claim higher fees for negotiating BAB deals than they would for sales of traditional, tax-exempt municipal bonds.

“Of course state and local governments are big fans of the Build America Bonds program — they get federal money that they don’t have to pay back,” Grassley said in a March 16 floor speech. “And the large Wall Street investment banks love Build America Bonds — they’re getting richer off of them. However, we all know there’s no such thing as a free lunch. Federal taxpayers are footing the bill.”

The full story, as relayed by many public works officials who sell BABs, is more complicated. They say the higher fees were common during the first few months of the program but have since normalized as the bonds become more of a fixture in the market.

What’s more, the pool of potential BAB buyers is much broader and larger than that for tax-exempt bonds. Foreign investors have embraced BABs, increasing their ownership of American municipal debt by 50 percent during the program’s first year, and BAB sales often put corporate bond traders in competition with municipal bond traders.

“You’re dealing with a brand-new product and new investors; when the first few [BAB] issues are done, you’re kind of guessing,” Bay Area Toll Authority chief financial officer Brian Mayhew, whose agency issued $1.3 billion in BABs last fall. “Is it a corporate transaction selling a muni[cipal] venture, or is it a muni transaction selling to the corporate world?”

Underwriters of BABs have so far commanded fees comparable to those associated with sales of high-grade corporate bonds. But Grassley has not abandoned the issue, playing up a Wall Street Journal story this month that pegged Goldman as the number-one BAB underwriter.

The debate over big banks wringing money from taxpayers and mom-and-pop local bond issuers flared anew on Friday, when a Justice Department list of co-conspirators in a municipal bond-rigging case was “inadvertently” disclosed in court filings. Lehman Brothers, J.P. Morgan and Bank of America were among the banks complicit in the scheme. BABs were not involved in the case, which centers on a different type of investment deal.

Leaving “Money on the Table”

About a month after the first BAB sales, Bloomberg reported that the program’s five largest bond issues had seen yields fall sharply after their initial sales, suggesting that local governments could have set their interest rates even lower — thus generating more money for public works projects — and still sold plenty of bonds. A second Bloomberg analysis found that New York City’s Metropolitan Transportation Authority could have held onto $9 million, enough to buy eight subway cars, by lowering its BAB yield just 0.1 percent.

Bonds, like stocks, change in price every day, but yields generally serve as a measure of their rate of return. So when BAB sales are being negotiated, “you have to push real hard,” explained Gary Breaux, director of finance at San Francisco’s East Bay Municipal Utility District. “It’s kind of a cat-and-mouse game. Investors are trying to get as high a yield as they can.”

About 70 percent of BAB sales during the program’s first year were negotiated, meaning that banks such as Goldman worked with municipal issuers to set the interest rate most agreeable to all sides. Esser’s group, the GFOA, recently advised its members to seek out competitive sales instead, forcing aspiring underwriters to vie for their business.

“Wall Street is very good at convincing state and local governments that every deal they’re doing is so unique and so unusual that it has to be negotiated to be successful, and we don’t agree with that,” Esser said.

Several BAB issuers acknowledged in interviews that they were concerned about selling debt at interest rates too favorable to investors. “It’s a problem you have to be mindful about,” said Dallas Area Rapid Transit chief financial officer David Leininger, who sold $750 million in BABs to pay for an expansion of local light rail.

“Nobody likes to leave money on the table,” agreed University of California chief financial officer Peter Taylor, who sold two rounds of BABs last year. Still, both Leininger and Taylor said they were satisfied with the pricing of their BABs, and Taylor called the program “a big home run.”

The IRS recently opened its own inquiry into the issue, sending out a “compliance check” that asks issuers how many saw BABs rise in price before the debt was delivered — a sign that investors were “flipping” the bonds by unloading them in the secondary market for a quick profit.

Both BAB investors and issuers said that pricing of the bonds has evened out in recent months as the program becomes more popular, offering an explanation similar to that for the higher-than-normal underwriting fees.

“That may have been an issue early on,” Regional Bond Dealers Association CEO Mike Nicholas said. “But the market has matured, so I don’t think that’s a consistent problem.”

Suspending Sales

The final bump in the road for BABs came when Florida announced its temporary exit from the market after an IRS conference call that left Ben Watkins, the state’s bond finance director, uncertain about whether he should rely on the federal government’s promise of subsidies.

Watkins said the Treasury Department had tried to reassure him about BABs’ long-term viability, noting that the program was designed as a tax refund so state and local governments would not be subject to the whims of congressional appropriators. “So, the only way you couldn’t get paid is if Congress changes the law,” Watkins said. “Not a slam dunk in and of itself.”

The House has passed legislation extending BABs until 2013, while gradually lowering their federal subsidy to 30 percent of interest. The Senate is expected to make a similar push before the stimulus law’s BAB provision expires at the end of this year, though criticism from Grassley and Senate Minority Whip Jon Kyl (R-Ariz.) could slow the process in the upper chamber.

Watkins, however, is looking for more than a reauthorization of the program. “I can’t permanently increase my exposure to the federal government without getting some clarity on” whether the bonds’ taxpayer subsidy to states could be garnished by Washington, he said.

The IRS did not return a request for comment on Watkins’ concerns and whether BAB interest payments were subject to withholding.

Meanwhile, the Build America concept continues to win political praise and practical kudos. President Obama called the program “one of the most successful” stimulus efforts, proposing to make BABs permanent in his most recent budget. And local issuers of the bonds like the prospect of raising more money cheaply to pave roads, build schools and pump water.

“We’re still learning” how to make the most of the corporate bond world, said Mayhew, of the Bay Area toll agency. “We’re getting better at understanding. But we’re not there yet.”

Showing signs that they can learn from history, lawmakers are now eying another tax benefit, but only for businesses that create new jobs. That proposal, still in the nascent stages, is designed to address the runaway unemployment numbers that plague many regions, while having the additional advantage of appealing to members of both parties. Indeed, House Minority Whip Eric Cantor (R-Va.) told The New York Times that there’s “a lot of traction for this kind of idea.”

If the White House will take the lead on this, I’m fairly positive it would be welcomed in a bipartisan fashion.

There’s good reason for Congress to do something. On Friday, the Labor Department reported that the economy shed an additional 263,000 in September, knocking the unemployment rate up to 9.8 percent — the highest level since 1983.

The good news here, if Cantor’s comments are indication, is that Republicans, while poised to exploit the jobless numbers to their advantage in next year’s elections, also wouldn’t stand in the way of every proposal addressing the problem.

A sampling of the lyrics:

When Paul goes on The NewsHour,
To talk to old Jim Lehrer
He looks so sad and crestfallen
It’s more than I can bear

I guess Krugman can add “inspirational source for artists” to his list of accomplishments. How many other economists have been the subject of songs and music videos? It seems that Krugman’s consistently negative outlook for the economy — a recent New York Times column entitled “That ’30s Show” warned President Obama that he needs a bigger stimulus plan “or you’ll be facing your own personal 1937″  — strikes a chord with artists. And their audiences.

Some economists can look for all the green shoots they want. People don’t have to buy it. Krugman’s more pessimistic views are the ones catching the imagination.

The president “meant to put the kibosh on the GOP’s favorite method for spreading the wealth around,” Frank writes, noting the astronomical growth of federal spending under former President George W. Bush, paired with a decrease in the number of federal government employees who could make sure those contracts were actually doing what they were supposed to. The failure of Parsons Corp. to finish building more than 20 of the 150 medical clinics it was hired to construct in Iraq is one just one prime example Frank highlights.

But as I wrote in my story posted today, Obama will have his work cut out for him, as he confronts a Congress that’s still ready to cave to government contractors when they lobby hard enough. That’s evidently why the Senate dropped the requirement that the House version of the stimulus bill included, and which House members touted as signifying a new era in government transparency:  the online publication of all those new government contracts.

So what happened to that?  Well, government contractors didn’t like it. And they pushed Congress hard enough until they got it removed.

President Obama is absolutely right that “far too often, [government] spending is plagued by massive cost overruns, outright fraud, and the absence of oversight and accountability.”

Making the actual contracts (and sub-contracts) available for everyone to see — as Congress originally promised — would go a long way to put a stop to that.

As I reported earlier, that protection was left out of an earlier version of the bill, leaving employees of the contractors that are handling billions of dollars of stimulus money vulnerable to being fired for reporting misconduct within their company. An amendment by Senator Claire McCaskill fixed that problem.

The final language is here.

Still, federal employees, despite almost a decade of internal congressional wrangling about the problem, remain wholly unprotected. Although Reps. Chris Van Hollen (D-Md.) and Todd Platts (R-Pa.) had proposed a bi-partisan provision on this that the House had adopted, the Senate conferees rejected it, apparently over concerns that providing protections for intelligence employees could somehow end up revealing classified information if they brought retaliation claims.

Tom Devine, legal director for the non-profit Government Accountability Project, is hoping to see federal employee protections in the near future. (There’s a bill on this already pending in the Senate, though as it stands now it still wouldn’t cover intelligence workers or provide jury trials.).

“It is not too late for accountability,” Devine said in a statement released today. “After nearly ten years of hearings and votes, there is no excuse to spend nearly a trillion dollars without safe passage for federal employees who risk their careers to keep it honest.”

Congress could still lock in federal whistleblowers protections before the money starts getting spent in 120 days, he said, adding: “The politicians owe it to the taxpayers.”

Do you favor or oppose the economic recovery package proposed by Barack Obama and the Congressional Democrats?

Favor – 44% (+7)
Oppose – 40% (-3)
Not Sure – 15% (-5)

This confirms a Gallup poll that showed stimulus support surging seven points since the president started his PR tour.

I caught up with Brown today after he made an appearance at a sustainable energy research event at the National Press Club. With the Senate on the verge of passing the stimulus package, I asked him what he saw as the biggest holes in the bill that need to be filled.

Sen. Sherrod Brown speaking at the National Press Club

“I would like to see more direct spending on infrastructure, but I think that’s a major component of it,” he responded. “I think there should be fewer tax breaks for businesses. … I think you want to kick the demand side a little bit more, but, you know, we can debate all day what’s better and what’s worse. I like the bill overall, I think it’s very good, I think it takes us exactly in the right direction.”

I then asked him whether he preferred the House bill, which provided less money in the way of tax cuts and more for infrastructure spending, aid to states and green investments.

“It doesn’t matter what I prefer,” he said. “I mean, I’m going to vote for the Senate bill today and tomorrow — cloture today and the bill tomorrow. And then we’ll negotiate and we gotta get 60 votes in the Senate.”

In his speech at the Press Club, he emphasized the need to balance environmental and manufacturing concerns. Ideally, he said, a green agenda would create manufacturing jobs rather than hurting industry.

“We’ll literally grow our economy as we protect our environment,” he pledged.

Brown will be someone to watch after the stimulus passes and environmental concerns come to the fore.