WASHINGTON - President-elect Barack Obama and congressional Democrats have conceded that an economic recovery bill containing $310 billion of tax cuts and $465 billion of spending may not be ready until early February, while Senate Finance Committee leaders prepare to vote on the tax portion of the bill as early as next week, sources said.
"We are going to do most of this work this month," Obama said yesterday between meetings with congressional leaders on the stimulus bill. "We expect that by the end of January or the first week of February, we will have gotten the bulk of this done."
House and Senate Democratic leaders said repeatedly during the past week that they will need bipartisan support for the measure and the tax cut provisions are designed to gain Republican votes.
Stimulus spending is expected to go toward infrastructure projects - roads, highways, bridges, dams, water and sewer systems, schools, and other public facilities - and energy-related initiatives such as upgrading the energy grid and battery power, sources said.
Prospective draft language of the stimulus bill indicates that state revolving funds, which provide low-cost loans for certain water projects, will get some help from the federal government, said Rick Farrell, executive director of the Council of Infrastructure Financing Authorities. While funding amounts are not set, clean water SRFs may get $8 billion to $10 billion from the bill, and drinking water SRFs may get "somewhat less," he said.
Recent drafts of the measure require no state match for the funds, relieving states from having to contribute a 20% state match on federal funds, according to Farrell. There also is likely to be a limited time frame of four or six months during which states will have to enter into binding agreements to spend the money.
Additional provisions could aid state and local governments in areas outside of SRFs.
"We have to give relief to states. Forty-four states are deeply in the red. The other six are barely not in the red, and we have to give them relief," Senate Majority Leader Harry Reid of Nevada said on "Meet the Press" Sunday.
Meanwhile, Senate Minority Leader Mitch McConnell, R-Ky., told reporters on Sunday that Congress should offer loans to state and local governments, rather than simply providing grants.
"If the money were lent rather than just granted, states would I think spend it wisely, and the states that didn't need it at all wouldn't take any," he said.
But some governmental sources said loans would not help much, given the financial straits of many governments. If Congress' intention is to give aid to state and local governments as quickly as possible, lawmakers should provide more funds to pre-existing programs, such as state revolving funds and community development block grants, they said.
"It's counterproductive if there's a proposal out there that says 'loan this money to state and local governments' ... and then says to [them] 'You need to pay this back,' " said Ed Rosado, legislative director of the National Association of Counties. "You're still putting the onus back on state and local governments."
Republicans have pushed for hearings and a slowed-down process for passing the stimulus measure. House Minority Leader John Boehner, R-Ohio, called last week for more time to consider the stimulus package when it is introduced, including posting the entire plan online for a week to allow the public to consider it.
House Democratic Majority Leader Steny Hoyer of Maryland said on Sunday that he agreed with Republicans demanding hearings on the legislation, but added that Congress has "had over 20 public hearings since October on this package." He threw cold water on the possibility of meeting the original Inauguration Day deadline for passing the legislation.
Hoyer said House Democrats have "been talking in [the] neighborhood" of $1 trillion for their proposed stimulus package.
After Republican leaders demanded tax cuts as part of any stimulus legislation, Democrats this week signaled their willingness to include tax breaks. An aide for House Speaker Nancy Pelosi said yesterday that she is open to tax breaks.
Pelosi said Congress will have legislation waiting for Obama to sign on Jan. 20 but did not specify that it would include stimulus legislation.
"We will hit the ground running on the initiatives you have described to address the pain being felt by the American people," Pelosi said.
Stimulus spending may increase municipal bond issuance enough to overshadow any decline in demand for munis that could possibly result from tax breaks, said Scott DeFife, senior managing director of government relations at the Securities Industry and Financial Markets Association. He said a much-increased deficit resulting from a stimulus bill that is not accompanied by tax increases would not necessarily imperil the financial markets generally.
"There won't be a significant dent in deficit reduction if the economy further stagnates in the way many people think it will," DeFife said. "I think the gravity of the situation and the enormity of government's involvement in economic activity kind of pushes that deficit conundrum aside for a period of time."
The stimulus may include provisions that would allow businesses to deduct more of their losses, a proposal that Dean Baker of the Center for Economic and Policy Research called "nightmare provisions" that are a "special interest tax break for the investment banks and the home builders."
Meanwhile, both Finance Committee chairman Max Baucus, D-Mont., and ranking minority member Charles Grassley, R-Iowa, have said their panel will hold a markup on the tax provisions in the bill, according to congressional sources. Those may include provisions to ease restrictions on banks' purchases of municipal bonds and to remove airport and other muni bonds from the alternative minimum tax, sources have said. While details of the bill are being discussed, early draft provisions that surfaced were not bond-related and a working draft of the legislation is not expected to be available until the end of this week at the earliest.
Although congressional rules state that only the House can create tax legislation, Senate taxwriters have recently worked around that rule by drafting legislation and then getting House lawmakers to place or substitute that language in a House bill.