WASHINGTON — The House on Friday voted 215 to 204 to approve legislation that would extend the Build America Bond program for two years, while gradually reducing the subsidy payments the federal government makes to BAB issuers.

The American Jobs and Closing Tax Loopholes Act also would extend by one year the relaxed small issuer requirement for bank-qualified bonds; authorize an additional $25 billion of recovery zone bonds to be issued through 2011; exclude water and sewer exempt-facility bonds from state volume caps; and exempt private-activity bonds from the alternative minimum tax through 2011.

Further, it would provide an additional $521 million of highway funds to states.

The House sent the bill, which had been pared down from the version proposed last week, to the Senate. But that chamber had already left town for its Memorial Day recess and will not be able to take up the measure until after it returns on June 7. The Senate is expected to make further changes to the legislation.

The House measure would extend the BAB program created by the American Recovery and Reinvestment Act for two years through 2012, while lowering the subsidy payments the federal government makes to issuers from the current 35% of interest costs to 32% in 2011 and 30% in 2012.

Issuers would be permitted to issue BABs to current refund previously issued BABs. The provision would cost $4.042 billion over 10 years, according to the House Ways and Means Committee, based on Joint Tax Committee estimates.

In authorizing another $25 billion of recovery zone bonds, the bill would ensure that each municipality receives a minimum allocation equal to at least its share of national unemployment in December 2009. The estimated cost of that program is $2.385 billion over 10 years.

The ARRA had allowed banks in 2009 and 2010 to deduct 80% of the costs of buying and carrying tax-exempt debt sold by issuers who annually issued no more than $30 million of bonds, an increase above the previous limit of $10 million.

The House bill would extend the $30 million limit through 2011 and allow it to continue to apply to individual borrowers participating in conduit deals rather than the conduit issuer.

The estimated cost is $254 million over 10 years.

In addition, the House measure would exempt bonds that finance water and sewer furnishing facilities from state private-activity bond volume caps.

The caps are based on population estimates and are the greater of $90 per capita or $273.775 million. That provision is estimated to cost $372 million over 10 years.

The ARRA exempted private-activity bonds issued in 2009 and 2010, as well as current refundings of PABs issued after 2003, from the alternative minimum tax. The House bill would extend these provisions through 2011 at an estimated cost of $224 million over 10 years.

Federal Home Loan Banks, which gained the ability to guarantee tax-exempt bonds under the Housing and Economic Recovery Act of 2008, could continue to do so through 2011, at an estimated cost of $148 million over 10 years.

In addition the bill would extend by one year Liberty Bond Zone, empowerment zone, and enterprise zone provisions.

The extra highway funds would help states that would have been frozen out of highway grants due to provisions in the Hiring Incentives to Restore Employment Act, which provided about half of the $932 million available for nationally and regionally significant projects to only four states.

The House bill would instead allow each state to receive the greater of an amount equal to its share of highway formula funds last year or an amount equal to the HIRE Act’s allocations, which had tipped the scale in favor of California, Illinois, Louisiana, and Washington.

The HIRE Act would leave out 22 states and give six states more than half of the total funds, according to House Transportation Committee chairman James L. Oberstar, D-Minn.

Money necessary to meet the requirements of the House-approved provision — or about $521 million in formula funds — would come from the federal highway trust fund.

The funds have a job-creation benefit of about 18,000 jobs, Oberstar said.