Three cities appealed on Friday to the Treasury Department for assistance under its $700 billion financial rescue plan authority, while airports continued their push for federal legislative help to make private-activity bonds more accessible for financing projects.
Philadelphia Mayor Michael A. Nutter hand-delivered a letter to the department Friday morning requesting more than $50 billion in Treasury assistance for cities under the Troubled Asset Relief Program.
The letter, also signed by Atlanta Mayor Shirley Franklin and Phoenix Mayor Phil Gordon and copied to congressional leaders, asked for $50 billion from TARP to finance infrastructure projects under a fund that would be managed by the Treasury.
The fund would provide grants and $25 billion of low-interest loans to cities for infrastructure uses, including purchases of hybrid vehicles for mass transit and city agencies, replacing roads and bridges, improving broadband access, and installing public security cameras. They would be repaid with property tax revenues.
Under the proposal outlined by the mayors, the federal government would also make loans available to city governments to help them repair investment losses in public pension funds. Philadelphia's pension system lost more than $650 million between January and September, the letter said.
Meanwhile, the mayors pushed for the creation of a short-term facility for cities to take low-interest loans directly from the Treasury for up to one year. Cities would repay the government at 50 basis points above the one-year Treasury rate, the mayors said.
Nutter was not discouraged by Treasury Secretary Henry Paulson's comments at a Wednesday press conference indicating that state and local governments would not be eligible for TARP assistance, said Philadelphia budget director Stephen Agostini.
Paulson said that helping state and local governments was "not the focus of TARP" and that the program was meant "to stabilize financial institutions and strengthen the financial system, and so on."
After speaking with the assistant secretary of economic policy at the Treasury, as well as congressional staffers and advisers, Nutter got the sense "that people are at least listening," Agostini said.
Treasury "could provide some relief if there was an opportunity to rethink what the next $350 billion would be used for ... as Treasury is rethinking and reassessing what their strategy needs to be," he said.
Meanwhile, airport executives jockeyed last week for inclusion in the second economic stimulus bill that Congress is slated to begin work on this week. Airport market participants, including the Metropolitan Washington Airports Authority, are pushing Congress to eliminate the alternative minimum tax on private-activity bonds, arguing that the AMT has contributed to making the PAB market virtually inaccessible to airport issuers.
Private-activity bond issuance is declining for airports partly because of the AMT, said Brad Van Dam of the American Association of Airport Executives. The group's data show that airport PAB issuance has dropped in increments this year, from $1.09 billion in June to $26 million in September.
The group has pushed Congress for elimination of the AMT for years, but has typically included the request in a larger package of proposals meant to assist airports.
While acknowledging that bond issuance for airports usually fluctuates anyway, Van Dam pointed to the MWAA's attempt to sell $175 million of AMT bonds. The negotiated deal was postponed last month because of market conditions.
The Airports Council International North America is also pushing for the AMT to be dropped from PABs, arguing that the interest rate premium investors demand to cover the additional tax liability has become untenable for airports.
"This discrimination hampers airports' ability to implement essential capacity projects and updates to keep pace with the demand for air travel and increase efficiency through the use of the latest technology," the council said in a report late last month.
Between August and the end of October this year, airports issued $289 million of AMT-eligible bonds compared with $2.02 billion during the same period last year, according to D.J. Mehigan, senior vice president at Morgan Keegan & Co. A single AMT-eligible bond deal by San Francisco International Airport made up the bulk of the issuance for that period this year, he said.
The yield spread between AMT bonds and non-AMT bonds "has effectively tripled" this year, he said. The spread has historically been in the 15 to 25 basis-point range and is now in the 55 to 85 range.
"You're paying a half to over three-quarters of a percentage point just because of the AMT," Mehigan said, adding that because of that "AMT penalty," airports are "just spooked to go to the bond market right now."