WASHINGTON - President-elect Barack Obama yesterday announced his economic team and said he has directed them to draft a broad, multibillion-dollar stimulus package within the next two months that would provide funds for infrastructure projects. He also warned that the deficit will grow significantly whether or not stimulus legislation is enacted and did not rule out repealing Bush administration tax cuts before they expire.
Municipal market groups have been sending letters to Obama asking that local and state government assistance be provided in any stimulus package that is proposed.
At a press conference in Chicago, Obama said his plan will create and preserve a total of 2.5 million jobs by investing in long-term goals of the administration: rebuilding infrastructure, roads, and bridges, modernizing schools, and developing clean energy. The initial recommendations for the package will be announced "in the coming weeks," he said, adding that he wants Congress to consider it when it starts its new session in January.
Obama said yesterday that, even without a stimulus measure, the deficit next year will be "bigger than we've seen in a very long time." He declined to offer a dollar amount for his stimulus proposal.
"American taxpayers are understandably concerned," he said. "If we already have a big deficit and now we're adding an additional stimulus, how are we going to pay for all that? ... We've got to make sure that the investments are made to sustain economic growth over the long term."
Economists and lawmakers have said a successful stimulus package would cost at least $400 billion to $700 billion, while many Republicans and fiscal conservatives have called instead for tax cuts to spur economic growth. Some federal officials and lawmakers warn the deficit could reach $1 trillion with the addition of a stimulus package.
Municipal market groups are pushing for any stimulus legislation to include funds for transportation and water projects, as well as provisions that ease or increase the use of municipal bonds.
The National Conference of State Legislatures has written to Obama and his transition team requesting increased funding for ready-to-go transportation projects, clean water and drinking water projects, which are financed through bond-related state revolving funds. One-time discretionary grants to states to help address their fiscal problems and a temporary food stamp increase were among other recommendations.
The Government Finance Officers Association is supporting other groups' requests for funding for water, road and school projects, among other things.
"We're also looking at this as an opportunity for some of our municipal bond initiatives," said Susan Gaffney, director of the GFOA federal liaison center.
Specifically, the group wants the stimulus bill to include contents of legislation introduced in the House and Senate earlier this year that would increase to $30 million from $10 million the tax code's so-called bank deductibility limit. That limit currently allows banks to deduct 80% of the costs of purchasing and carrying tax-exempt bonds issued by states and localities whose annual bond issuance does not exceed $10 million.
In addition to raising the cap, borrowers that sell bonds through conduit issuers would be able to qualify as small issuers by electing to apply the $30 million issuance limit to themselves rather than at the issuer level.
Chuck Samuels, a lawyer with Mintz Levin Cohn Ferris Glovsky & Popeo PC here who is counsel to the National Association of Health and Educational Facilities Finance Authorities, said the already-crafted bank deductibility legislation "would be immediately stimulative, which of course is the idea of the stimulus package," adding that the measure would also help banks.
"In the past, the idea of incentivizing banks was maybe not a very popular idea, but frankly, that's a sector right now that we need to help get moving," he said.
Housing advocates also are in talks with lawmakers about including proposals to help the ailing housing market. Ideas include a provision that would allow homeowners to use both the homebuyer tax credit and the mortgage revenue bond program together. Current law permits potential homeowners to use one or the other.
The advocates also are pressing for a provision that would give states more time to use the additional bond issuance allocated to them by this summer's omnibus housing bill. In addition, they would like to see the definition of "subprime" expanded to allow more homeowners to take advantage of refinancing their home loans through the mortgage revenue bond program, an option made available by the housing legislation.
House Republican leader John Boehner of Ohio yesterday said that "increasing government spending is [not] the best way to put our economy back on track." He hoped Obama's economic team would give "serious consideration" to eliminating the capital gains tax and cutting taxes for the middle class and small businesses.
Middle-class tax cuts were a major theme for the Obama campaign. Yesterday, the president-elect said: "The basic principle is that we're going to provide tax cuts to the vast majority of Americans, the middle class that have been struggling over the last eight years [and] that those who have benefitted disproportionately over the last eight years, the very wealthiest among us, will pay a little bit more in order for us to be able to invest in the economy and get it back on track."
But he did not say whether he would repeal the Bush tax cuts before they expire at the end of 2010 as part of his plan to stabilize the economy.
"Whether that's done through repeal or whether that's done because the Bush tax cuts are not renewed is something that my economic team will be providing me a recommendation on," Obama said.
Obama's nominations for key economic posts include: Timothy F. Geithner, president of the Federal Reserve Bank of New York, for Secretary of the Treasury Department; Lawrence Summers, of Harvard University and a managing director at D.E. Shaw, for director of the National Economic Council; Christina Romer, University of California at Berkeley professor and co-director of the monetary economics program at the National Bureau of Economic Research, for chair of the Council of Economic Advisors; and Melody Barnes, former executive vice president for policy at the Center for American Progress, for head of the Domestic Policy Council.
Obama also is reportedly expected to tap Congressional Budget Office director Peter Orszag to head the Office of Management and Budget.