Some states are being more stimulated than others.

February’s stimulus package included something called “Build America Bonds.” Under the program, states can issue taxable debt to bondholders to raise money for infrastructure projects, rather than issue the usual tax-exempt debt.

The idea was to broaden the investor base of municipalities at a time when many existing investors were feeling crunched and unwilling to lend. Investors that don’t have to pay taxes, like pension funds, don’t want to buy tax-exempt debt, because they don’t get any tax exemption, but they are interested in taxable debt, which pays a higher interest rate to everyone to help taxable investors (like you and me) make up for the tax owed on their profit. Under Build America, the feds then reimburse the states for the extra interest rate they must pay on the taxable debt.

Now, Municipal Market Advisors tells us that “of the $19.2 billion of total subsidy payments now ‘owed’ by the federal government over the next 40 years” under Build America, “nearly half of that (49 percent) will go to California and Texas, even though those states account for just 20 percent of the nation’s population. Nearly 70 percent of the total BAB subsidy will flow to just five states.”