Rep. Gerald Connolly said yesterday that he will introduce legislation during the next few weeks to provide some sort of federal support for municipal bonds, and that the chairman of the House Financial Services Committee has promised the panel will consider it.
The Virginia Democrat made his remarks at the National Association of State Treasurers' legislative conference here, while another speaker, Alice Rivlin, senior fellow of economic studies at the Brookings Institution, said a second stimulus package will be needed.
House Speaker Nancy Pelosi, D-Calif., yesterday appeared receptive to the idea of a second stimulus bill, telling reporters after a meeting with economists, "We have to keep the door open."
Connolly, a freshman congressman who does not sit on the Financial Services Committee, said Rep. Barney Frank, D-Mass., has assured him that the committee will hold hearings and vote on the bill that he introduces.
"I want to introduce legislation, real quickly, so we at least have something concrete, even if we end up amending it or refining it," he told the treasurers. "Barney Frank and his staff have promised to work with us on that, we'll have hearings ... The good news is that we have a sympathetic chairman who gets it and knows this is a problem that we have to deal with."
Connolly said that, compared to the assistance the federal government has provided so far, giving muni issuers more market access seems "relatively uncomplicated."
The three options for legislation would be to make the federal government an insurer of last resort; a provider of loan guarantees for muni issues; or the creator of a facility where issuers, in exchange for a premium, could opt in and have their debt treated as "indistinguishable from U.S. Treasuries" for market purposes, he said.
However, Connolly said he remains "agnostic" about the best approach and is open to suggestions from market participants. But one thing he is certain about is that the federal government must play a role in rejuvenating the muni market.
"I don't think we can sit idly by," he said.
Connolly told the treasurers that there is "profound ignorance" on the part of some federal lawmakers about the responsibilities of state and local governments and about the extent to which stable municipal issuers have been swept up in overall market turmoil.
Muni bond issuers have very rarely defaulted on their bonds or declared bankruptcy, he said, adding, "You are not a risk."
Meanwhile, Rivlin, former director of the Congressional Budget Office, told the treasurers that they should prepare for a recession that is "a good deal deeper and a good deal longer" than the Obama administration is predicting.
In a budget outline released last month, the administration predicted a relatively modest 1.9% shrink in the gross domestic product in 2009, followed by a strong 3.2% rebound in 2010. Rivlin said those predictions are overly optimistic.
She said a second stimulus bill will be needed because the first one was "probably not big enough."
Rivlin also said that she would have divided the $787 billion package that was enacted into two separate pieces of legislation - one containing the provisions that would provide immediate effects, and the other with some of the more complex spending provisions. That would have given lawmakers more time for deliberations on the second, more complex portion of the package.
While the package enacted into law contained several provisions that were "not strictly stimulus ... they were good things to do," she said.
