BAM’s debt service reserve fund (DSRF) insurance policies offer flexible tools for U.S. municipal bond issuers to reallocate cash from reserve funds for other public purposes. This includes reducing total outstanding debt, lowering annual debt-service costs, and financing additional essential infrastructure projects. Nationally, BAM has issued over 1,300 DSRF insurance policies totaling more than $3.7 billion.
Juliet Stiehl, Head of East Region Public Finance for BAM, emphasized how DSRF insurance policies play a powerful role in making public policy goals more financially viable, supporting both traditional infrastructure projects like water and sewer utilities and airports, as well as innovative investments in economic opportunities like the Connecticut Baby Bonds.
The Connecticut Baby Bonds initiative is a pioneering effort to combat generational poverty and promote economic mobility. The program creates investment accounts for Medicaid-eligible children born in the state. Initially, Connecticut officials had planned to finance the Baby Bond Trust by issuing $600 million of new-money debt over 12 years. However, leveraging the BAM DSRF insurance policy resulted in cost savings of over $200 million for the program.
Kevin Roberts, Vice President at BAM and the principal analyst on the transaction, acknowledged the strong support from the state’s leadership, which led them to explore this creative funding solution. The success of the transaction was bolstered by the state’s general obligation pledge and its progress in improving its fiscal outlook.
Build America Mutual operates as a mutual bond insurance company, working for the benefit of its members, which include cities, states, and other municipal entities. BAM provides financial guaranty to lower the cost of borrowing for its members. It is the preferred bond insurance provider for the National League of Cities. As of June 30, 2023, BAM has insured $128 billion of municipal securities and counts more than 5,000 municipal issuer-members from 49 states.
The launch of the Connecticut Baby Bond Trust stands as a significant milestone in the state’s effort to address generational poverty and foster economic opportunity, while demonstrating the value of innovative funding solutions enabled by BAM’s DSRF insurance policies.
