WASHINGTON - New federal banking regulations will further constrain already struggling infrastructure finance, transportation advocates said in a letter to congressional leaders.
The new liquidity coverage ratio rule adopted by the Federal Reserve in conjunction with other federal regulators will add to an infrastructure funding gap when money for projects is already limited by a nearly insolvent highway trust fund, the American Road and Transportation Builders Association told Congressional leaders in a Sept. 3 letter.
The HTF is a pool of federal gasoline tax money that backs Grant Anticipation Revenue Vehicle, or Garvee, bonds issued by municipalities and provides funding for important transportation infrastructure. The rule requires the largest banks to hold a certain ratio of high-quality liquid assets as a safeguard against times of liquidity stress, and doesn't allow muni bonds to be counted toward that requirement. A provision allowing at least some munis to be HQLA is under development, Fed board members said, though it isn't yet ready for adoption.
ARTBA president and chief executive officer Peter Ruane's letter to House speaker John Boehner, R- Ohio, minority leader Nancy Pelosi, D-Calif., Senate majority leader Harry Reid, D-Nev., and Senate minority leader Mitch McConnel, R-Ky., said the restriction on banks will exacerbate the challenges of state and local transportation finance. Banks have been major buyers of municipal bonds over the past five years, market statistics show, so the inability of banks to use munis to satisfy the new rule's requirements could hurt bond-financed projects, including public-private partnerships.
"This decision will increase the financing cost of infrastructure projects for state and local governments by imposing a constraint on the market for municipal bonds," ARTBA Ruane said in a statement. In his letter, the ARTBA leader urged the lawmakers to use the new banking rules "as another motivator to do what the vast majority of your colleagues have acknowledged needs to be done—develop a long-term, sustainable revenue solution to permanently stabilize the Highway Trust Fund and support future state investments in transportation improvements."
Congress approved a short-term HTF funding "patch" in July that averted bankruptcy for the important transportation funding resource, but the HTF remains in constant danger of insolvency while Congress weighs options to fund it for the long-term. Many industry advocates believe raising the gas tax is the most realistic answer, but that solution is highly unpopular politically. The HTF will face another insolvency crisis next year if action isn't taken before then.
