MINNEAPOLIS — Kent Hiteshew, the director of the Treasury Department's new office of state and local finance, described the office's initial areas of focus and asked municipal government finance officials to provide input about how the office could be helpful.
Hiteshew spoke on Saturday, just days after starting his new position, at a meeting of the Government Finance Officers Association's debt committee here.
"We have a strong interest in state and local governments being able to continue to provide critical health, safety, education, infrastructure and economic development programs to their residents," Hiteshew said. Currently, many municipalities have to provide services while dealing with the fact that their budgets are increasingly focused on paying for retirement promises. In a few cases, governments that struggle with balancing these priorities have filed for Chapter 9 bankruptcy, but more frequently, they experience distress and cut back on services and don't invest enough in infrastructure, he added.
The office will regularly monitor municipal bond market activity as part of its efforts to advise senior Treasury officials. Hiteshew acknowledged that the market has changed substantially since the financial crisis.
Treasury has been part of Obama administration efforts to give Detroit and Puerto Rico advisory support and help them effectively utilize existing federal funding programs. Hiteshew's office feels that Treasury and the White House can't immediately solve these governments' challenges. However "we do believe that we can, and should, be part of the solution," and hope that the lessons the federal government has learned about how federal programming intersects with state and local policy from these cases can be useful in the future, Hiteshew said.
The office will also prioritize deepening the federal government's understanding of state and local government's pension and other post-employment benefit challenges, he said.
Another focus of the office will be infrastructure investment. It will aim to understand how state and local governments are thinking about infrastructure investment and the obstacles that prevent projects from being financed and built. It will work with other groups in the Obama administration and provide a market perspective about existing programs and priorities. And it will evaluate alternative private capital strategies that could complement other funding sources, Hiteshew said.
The office will also serve as a "hub" for stakeholders interested in issues like tax reform and regulations, he said. The office is not a regulator itself, but it will communicate with the Securities and Exchange Commission, the Municipal Securities Rulemaking Board, the Governmental Accounting Standards Board, the Federal Reserve and Treasury's Office of Tax Policy. Also, it will engage with people involved in all aspects of municipal finance, from issuers to underwriters to investors.
Treasury had heard that it can be difficult to figure out which group in the department to approach with concerns about issues that require expertise from multiple Treasury offices. The office will focus Treasury's interests in state and local finance "under one roof and serve as a single point of contact, which we believe will enable the Treasury Department to be more responsive and more forward-looking on municipal finance issues," Hiteshew said.
Hiteshew comes to Treasury from JPMorgan, and many years ago worked for New York City and the U.S. Department of Housing and Urban Development. In addition to Hiteshew, the office is adding two policy analysts, and it plans to add other employees that have an expertise in municipal finance, particularly in state and local budgeting, pensions and the muni market. Hiteshew said he's adamant that his team include someone who has been a state or local budget officer.
Ben Watkins, chair of the committee and Florida's bond finance director, said he wants Hiteshew to be able to provide perspective about the diversity of issuers and how not all state and local governments face the same issues. Another committee member suggested he attend state GFOA meetings.
Debt committee co-chair and Philadelphia Treasurer Nancy Winkler said that the lack of sufficient resources for infrastructure investment is a fundamental challenge and is detrimental to the U.S. economy.
Another committee member was interested in what Hiteshew's office has to say about pensions in light of the new GASB standards and increased rating agency scrutiny of pensions. Other committee members expressed their concerns about red tape holding up federal funds for infrastructure projects.
