Sequestration Reduction Rate-BABS and Other Subsidy Payments cut 7.3% in Fiscal Year 2015

Effective October 1, 2014, issuers of Build America Bonds and other direct-pay bonds will have their subsidy payments processed in federal fiscal year 2015 reduced by 7.3% due to sequestration. The federal fiscal year 2015 reduction rate replaces the slightly lower 7.2% reduction rate for payments processed in federal fiscal year 2014. Unless further Congressional action is taken, the new sequestration reduction rate will continue through and including fiscal year 2024, as the reduction rate term was extended by Congress past the initial 2021 date.  In addition to Build America Bonds, the reduction rate applies to Qualified School Construction Bonds, Qualified Zone Academy Bonds, New Clean Renewable Energy Bonds (New CREBs) and Qualified Energy Conservation Bonds for which the issuer elected to receive a direct credit subsidy.

As a reminder, issuers should remember to timely complete and file IRS Form 8038-CP to request their interest subsidy payment, showing the full amount of interest paid. The Internal Revenue Service will automatically apply the reduction rate and send a check for the correct payment amount following the application of the reduction rate. Additionally, the Internal Revenue Service will notify issuers that a portion of their requested payment was subject to the reduction rate.

Clients who may need more information on their particular bond issues and the possibility of an extraordinary redemption as result of the sequestration should contact us directly.