The Municipal Market Advisors research firm expects “record municipal borrowing of up to $450 billion in 2010,” largely because of “the generous subsidy” offered by the federal government as part of the Obama administration’s spring 2009 stimulus plan.

That subsidy comes through the Build America Bonds program, which allows states and cities to issue taxable debt, with the feds paying the difference between the higher interest rates such bonds command (rates are higher because the investors have to pay taxes, so they demand more to make up for that extra cost).

The point of Build America is to allow municipal issuers to tap into global bond investors so that the cities and states don’t have to worry about exhausting their usual buyers: wealthy in-state individuals who enjoy the old-fashioned muni-bond tax break.

But absent a new subsidy, perhaps states and cities would have learned another lesson from the prospect of saturating their usual customer base: they borrow too much.

As FW noted before holidays, muni borrowing nationwide is at record highs: $2.3 trillion last year, a more than 50 percent increase (after inflation!) in a decade.

Thanks to this piece of the stimulus, they, along with the nation’s failed banks, can borrow some more … until they overwhelm the feds’ capacity to bail them out.