Top finance executives from 30 major cities are urging the Biden administration to ask Congress for flexibility in direct aid to local governments and a restoration of advance refunding.
The Tuesday letter's signatories also want the administration to consider restoring and expanding the Federal Reserve’s now expired 2020 Municipal Liquidity Facility.
That short-term lending program should expanded to support long-term market access, they said.
The Municipal Liquidity Facility offered assistance for municipalities in the short-term market. But “the terms were insufficient, leaving in place the need for long-term borrowing such as refinancing for savings and funding capital projects,” the letter said.
The finance directors said the federal government should consider “lowering the rate, extending the term, allowing for taxable and tax-exempt bonds, and expanded eligible uses.”
Last year only Illinois and the New York Metropolitan Transportation Authority tapped the program that was limited to a three-year maturity and offered rates set to an overnight index rate plus a spread based on a borrower’s ratings. The letter came on the eve of a three-day markup by the House Ways and Means Committee and other congressional committees of tax provisions that will be included in Biden’s proposed $1.9 trillion American Rescue Plan.
Biden has proposed the inclusion of $350 billion in direct aid to state and local governments but hasn’t suggested the details on how it should be apportioned.
The city CFOs are seeking to amplify their collective voices that the money is urgently needed as the pandemic has taken a grim toll on their tax revenues and increased the demands for emergency spending.
The letter provides a broad list of what cities need to stabilize and grow their economies.
Previous relief packages to cover pandemic expenses and eliminate the local share for FEMA and National Guard expenses have eased urgent needs, but the CFOs said ongoing pressures persist and require an additional federal help hand.
“The monumental and historic nature of this crisis requires significant and ongoing federal support for Covid relief,” the group wrote. “Federal support that stimulates economic growth and promotes job growth is of utmost importance. Given the long-term reality of the pandemic, flexible, sustained, and direct funding is paramount – particularly, funding for local governments.”The group said put direct aid is at top of their wish list but flexibility is also central to their needs.
“It is critical this funding flows directly to cities,” the letter said. “To shore up our local finances, we cannot overemphasize the importance of direct funding that will allow for revenue loss as an eligible expense.
In the absence of this support, cities with little financial flexibility will continue to be forced to take counter-stimulant measures such as layoffs or furloughs.”
To assist local governments in both managing through the crisis and then in longer term stabilization efforts, the group urged the Biden Administration to restore the ability to advance refund debt that was eliminated in the 2017 tax package.
“This elimination significantly limited our cities’ flexibility in generating savings from refinancing into a lower interest rate market,” they said. “Restoring the ability to issue tax-exempt advance refunding would allow us to generate hundreds of millions of additional savings.”
Municipal bond provisions are expected to find a more favorable reception with a Democratic administration in place along with the Democratic Congress.
The group also asks for assistance in targeting economic stimulus strategies and through federal innovation and infrastructure funding on education, public health management, resilient infrastructure needs, small business aid, direct assistance to individuals and families, food security, housing and homelessness assistance programs; and tourism and visitor industry aid.
“Federal funding in each of these areas will result in job growth, increased consumer spending, additional municipal revenues, and increased ability to provide residential services,” the group wrote. The letter to President Biden also was sent to congressional leaders of both parties.
The signators include the finance or budget directors, CFOs, and controllers of Albuquerque, NM; Austin, TX; Boston, MA; Charlotte, NC; Chicago, IL; Columbus, OH; Dallas, TX; Denver, CO; El Paso, TX; Fort Worth, TX; Houston, TX; Jersey City, NJ; Las Vegas, NV; Los Angeles, CA; Louisville, KY; Milwaukee, WI; Minneapolis, MN; Nashville, TN; New York, NY; Oakland, CA; Philadelphia, PA; Phoenix, AZ; Portland, OR; Sacramento, CA; San Antonio, TX; San Diego, CA; San Francisco, CA; San José, CA; Seattle, WA; Tucson, AZ; and Washington, D.C.
Combined, they represent a population of more than 40 million and are among the nation’s 50 largest cities. Local government revenue losses are estimated at between $135 billion and $180 billion through 2022 while state shortfalls are projected at between $305 billion and $400 billion through 2022, according to the liberal-leaning Center on Budget and Policy Priorities.
The group also sought to counter critics who have labeled direct aid to local and state governments as a bailout.
“The stress placed on cities’ operating budgets over the last year has been nearly entirely due to the economic fallout of the pandemic,” the letter said. “Historic levels of revenue losses without federal aid has forced many cities to contemplate – or enact – service cuts, lay-offs, hiring freezes, and furloughs. All of these measures have counter-stimulative effects and dig a deeper economic hole.”
The joint participation effort comes after most of the cities’ participation in the CFO Forum sponsored by the Milken Institute late last month, said the forum’s host, Jennie Huang Bennett, Chicago's chief financial officer.
The institute is now the sponsor of the forum launched by Chicago’s former CFO Lois Scott more than a decade ago and the University of Chicago’s Center on Municipal Finance at the Harris School for Public Policy. The forum was held in conjunction with Milken’s public finance conference and as is tradition the forum — attended remotely by 26 finance chiefs — was private.
“Not surprisingly” the pandemic, its impact and need for aid “was a central point of discussion and what came out of it was in essence a call to action…to add our voice to the chorus of voices asking for state and local government” aid, Bennett said.
— Brian Tumulty contributed to this story.
