WASHINGTON - House Financial Services Committee chairman Barney Frank is delaying until late May a hearing on an omnibus municipal bond bill that his staff is drafting. He had originally planned to consider the bill on May 5.

Instead, the Massachusetts Democrat's committee will now meet that day to consider the impact of Lehman Brothers' collapse on state and local governments, particularly the investment losses California municipalities suffered when the firm collapsed in September.

State and local governments nationwide are said to have lost at least $1.67 billion in highly rated Lehman-issued debt held at the time of Lehman Brothers Holding Co.'s bankruptcy filing Sept. 15, according to a February letter from several California lawmakers to Treasury Secretary Tim Geithner.

Tuesday's hearing is expected to revolve partly around little-noticed legislation introduced in January by two California Democrats: Reps. Jackie Speier, who sits on Frank's committee, and Anna Eshoo. Their measure essentially requires the Treasury Department to use a portion of the $700 billion Troubled Asset Relief Program to purchase at par the nearly worthless Lehman debt still held by states and localities and other public entities.

The legislation comes after San Mateo County - which includes Speier and Eshoo's districts - sued Lehman's holding company and its accountants for fraud in November, arguing that they misrepresented the health of the firm days before its bankruptcy. An investment pool run by the county treasurer lost over $150 million when Lehman declared bankruptcy.

Marshall Wilson, communications manager for San Mateo County, said yesterday that the suit is still pending before a U.S. Bankruptcy Court in Manhattan.

Although the Financial Services Committee would like to shed light on the harm to investors caused by Lehman's collapse, a congressional source said that there are no plans to include Speier's and Eshoo's language in the broader omnibus muni bill that is still in an early draft stage.

The congressional source said that the hearing on the omnibus bill was delayed in deference to officials from Treasury and the Federal Reserve, who are focused on releasing bank stress-test data on Monday.

In recent weeks, Frank's staff dropped from the omnibus bill the inclusion of a federal guarantee for general obligation debt, which some market participants did not believe was needed anyway. Sources have also said such a guarantee would have been politically difficult to achieve,.

The omnibus bill is now said to include four main provisions: a temporary federal liquidity facility for variable-rate demand obligations and a temporary reinsurance program for revenue bonds; a requirement that muni and corporate debt be rated on a "global" scale based on the likelihood of timely repayment to the creditor; and a requirement that currently unregulated muni financial advisers be subject to some kind of federal regulation.

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