The House has approved an extension of the popular Build America Bonds program, but with a reduced federal subsidy.

The bonds provision is part of a small-business and infrastructure measure that the House passed on March 24 by a 246-178 vote.

The legislation would extend the bonds program until April 2013. It was established under last year's American Recovery and Reinvestment Act and is due to expire at the end of December.

The bonds fund state and local infrastructure work. Since the program was launched in April 2009,  theirvolume has jumped to $78 billion as of Feb. 28, or about 20% of the municipal-bond market, according to the Treasury Dept.

TheHiring Incentives to Restore Employment Act (HIRE), signed into law on March 18,expands the uses for the bonds, to include school construction and energy projects.

Under the program, localities issuing the bonds receive a federal subsidy towards the interest rate they pay on the debt. That subsidy now equals 35% of the interest rate.

Under the House-approved bill, that subsidy would be cut gradually, to 33% in 2011, 31% in 2012 and 30% from January through March 31, 2013.

The Obama administration's fiscal 2011 budget proposes to make the Build America Bonds program permanent, but also to trim the subsidy to 28%.

There has been no action yet in the Senate on the legislation.

The Senate Finance Committee's top Republican,  Charles Grassley of Iowa, has criticized financial firms that underwrite the Build America Bonds for the level of fees they charge.

When the Senate passed the HIRE Act, which broadened the uses of  Build America Bonds, Grassley said, "Wall Street loves this program, which ought to be a red flag to taxpayers."

Goldman Sachs Group Inc. Chairman and CEO Lloyd C. Blankfein, responding to questions from Grassley, said March 1 that Build America Bonds "underwriting fees are typically lower than investment-grade corporate  bonds of similar maturities and slightly higher than similar maturity tax-exempt securities."