WASHINGTON - House and Senate Democratic leaders said yesterday that they will push for a second economic stimulus package when Congress returns to Washington for a lame-duck session on Nov. 17.
House Speaker Nancy Pelosi of California said the House may use as a starting point the $61 billion stimulus package it approved in September, which included major funding for highway infrastructure and state revolving funds. However, that measure may have to be pared down given the current financial crisis, she said.
Pelosi noted that the previous package was stymied by Republicans, but said those lawmakers may now have fewer reasons to oppose it following the election.
The Republicans who blocked the bill before had an incentive to protect President Bush from having to veto or sign it, she suggested. Any legislation would need support from 60 senators to avoid a filibuster.
The stimulus package previously approved by the House contained $12.8 billion for highway infrastructure - nearly $5 billion more than was provided in a Senate economic stimulus package pending at that time - as well as $600 million for airport construction. It contained $6.5 billion for the clean water state revolving fund and $1 billion for the drinking water state revolving fund. Under the revolving fund programs, states can supply low-cost loans for local wastewater and infrastructure projects.
However, Democrats "have a lot less money to draw upon" due to the economic downturn worsening since September, Pelosi told reporters.
Senate Majority Leader Harry Reid of Nevada also supports a push for another stimulus package.
"Recent developments only reinforce the need for additional action to reinvigorate the economy. We hope to consider an economic recovery package during a lame-duck session," said Regan Lachapelle, deputy communications director for Reid. "Our success will depend on the willingness of President Bush and congressional Republicans to join us in these efforts."
Meanwhile, House Republican Leader John Boehner of Ohio criticized Pelosi for pushing what he called "a bloated spending initiative." He has proposed his own economic recovery plan based on tax cuts.
MSRB officials said yesterday they would like to work with the administration of Barack Obama on any stimulus proposals involving muni bonds. "President-elect Obama has emphasized the importance of investment in infrastructure to our nation's economy," said MSRB executive director Lynnette Kelly Hotchkiss.
"Municipal bonds have traditionally played an important role in financing construction of roads, schools, bridges, and other projects in this country for many years," she said.
Timothy Firestine, chief administrative officer of Montgomery County, Md., said that the new Democratic gains in the House and Senate bode well for a second stimulus package, but emphasized that the top priority should be getting something passed in prompt order, rather than waiting for the new Congress to assemble in beginning of 2009.
"Timing is everything ... if you wait until January, that's several months of delay," he said. "What's important [is] getting the money to work quickly."
Investment in infrastructure for state and local governments should be a key piece of any stimulus package, he said.
Firestine testified before the House Ways and Means Committee last month, calling for additional aid to the municipal bond market, which he said has been overlooked by the Treasury Department and Federal Reserve during the financial crisis.
One of Firestine's recommendations, that banks be allowed to purchase and hold muni bonds sold by governments that issue up to $30 million in bonds annually, is being seriously considered for possible inclusion in the stimulus package, sources said.
Currently banks can deduct 80% of the costs of purchasing and carrying the bonds of states and localities whose annual bond issuance does not exceed $10 million. House Financial Services Committee chairman Barney Frank, D-Mass., introduced legislation earlier this year to increase the limit to $30 million. In addition to raising the cap, the bill would allow more borrowers that sell bonds through conduit issuers to qualify as small issuers by electing to apply the $30 million issuance limit to themselves rather than the conduit issuer.
Chuck Samuels, a lawyer with Mintz Levin Cohn Ferris Glovsky & Popeo PC here who is counsel to the National Association of Health and Educational Facilities Finance Authorities, said there will be a "grassroots" effort to influence lawmakers to consider the legislation.
"Nothing in the election changes the fact that state and local governments and tax-exempt bonds still need assistance, and bank deductibility is one good way to stimulate and enhance the market," he said.
A second stimulus package must include more than a broad round of rebate checks, muni market participants warned.
"Just to give people an extra $500 is really not going to move the economy," said Richard Ciccarone, managing director and chief research officer at McDonnell Investment Management LLC. "It's like taking an aspirin when you have a more serious problem."
Other aspects of a stimulus package should target two categories of issuers that are hurting the most: educators and health care providers, Ciccarone and other market participants said.
"The serious problem with the fall of the stock market is the effect on endowment money, which will impact student aid financing," Ciccarone said. If scholarships are harder to achieve in a credit environment already pinching student loans, then students will find it "harder for them to carry on their education, particularly in a weak job market," he said.
Patrick Temple-West and Andrew Ackerman contributed to this story.