WASHINGTON - The House yesterday voted 260-166 to pass legislation that would establish new conditions for the disbursement of the second $350 billion portion of the Troubled Assets Relief Program, including a provision clarifying that the Treasury Department has the authority to help the municipal bond market.
The bill also includes a provision to require the federal government to guarantee leaseback deals that transit agencies entered into with private investors and that technically defaulted when the credit ratings of their guarantors were downgraded below triple-A. Transit agencies are facing billions of dollars in termination payments in these deals, but such a relief provision has been opposed by leaders of the Senate Finance Committee, which has jurisdiction over tax issues.
Passage of the bill, which was sponsored by House Financial Services Committee chairman Barney Frank, is essentially a symbolic victory because it has zero chance of passing the Senate, which has already approved the second disbursement of TARP funds. But the Massachusetts Democrat said that securing widespread support for his bill in the House is crucial to persuading the Obama administration to follow its conditions.
"When we have the force of a large number of the members, it will make us more persuasive," he said, speaking on the House floor yesterday afternoon. "Passing this bill, with these specifics, will be adding greatly to our ability to get the administration to do these things."
Among other provisions, the bill clarifies that the under the Emergency Economic Stabilization Act, which Congress approved in October to authorize TARP, the Treasury can use TARP funds to purchase municipal bonds or to provide credit enhancement for munis that could be purchased under a Federal Reserve program in return for a short-term loan.
"The authority of the [Treasury] Secretary ... includes the authority to provide support to state and local governments, and other issuers of municipal securities, which are having difficulty accessing appropriate financing in the capital markets," a draft of the bill said. "Such support includes the direct purchase of municipal securities and providing credit enhancement in connection with municipal securities whose purchase is financed under any facility provided by the [Federal Reserve] Board or any Federal Reserve bank."
Frank's bill is not expected to be voted on in the Senate, which last week backed the second disbursement of TARP funds in a circuitous fashion: it narrowly voted down a measure to block the second $350 billion. The House is expected to vote on a similar "disapproval" measure today, though it does not have the support of the Democratic leadership and is expected to fail. In any case, President Obama has threatened to veto any bill that would block the second TARP disbursement. He has also said repeatedly that he would use TARP funds to help municipalities.
The bill, and Obama's support for it, marks a change from the Bush administration, which generally did not support using TARP to help out municipal issuers.
Meanwhile, Timothy Geithner, Obama's nominee to be Treasury secretary, reaffirmed Obama's pledge to help municipal issuers in a confirmation hearing yesterday before the Senate Finance Committee, though he was speaking mainly about an economic stimulus proposal Congress is considering, not TARP. Geithner said that federal aid for states is "an absolutely important part" of the stimulus package to stave off greater job losses and promote business spending and that the administration will work to get funds "out the door quickly."
Without federal aid, "states will have to cut back very, very dramatically and that will raise unemployment," Geithner said adding that state spending cut backs would hurt local businesses.
State aid "is really essential to do and would be at the heart of any credible fiscal plan," he said.
Separately, Geithner called for "comprehensive financial reform" to modernize a system that "failed to meet its basic obligations .... Well-designed financial regulations with strong enforcement are absolutely critical to protecting the integrity of our economy." He added that Obama will unveil a comprehensive plan for financial services reform in the next few weeks.