WASHINGTON — Cities need another dose of recovery aid from the federal government in any forthcoming jobs bill, including extensions of Build America Bonds and other bond-related stimulus programs, global credit ratings for corporate and muni bonds, and more funds for transportation and water infrastructure projects, officials told President Obama this week.
The requests were made in a letter that the National League of Cities sent Obama on Sunday. It warned that “in the absence of additional federal intervention, a deepening local fiscal crisis could hobble the nation’s incipient recovery with more layoffs, furloughs, cancelled infrastructure projects, and reduced services.”
The NLC told the president that the municipal finance market “is not functioning as it did before the recession, and it may never do so again.” Nevertheless, some cities “are beginning to realize the benefits of the finance tools provided in [the American Recovery and Reinvestment Act],” it said.
Those tools — which include BABs, more liberal provisions for bank-qualified bonds, and muni bond exemptions from the alternative minimum tax — were only made available until the end of 2010.
ARRA created BABs, which allow issuers to issue taxable bonds in return for direct payments from the federal government or tax-credit bonds that provide tax credits to investors.
The act allows banks to deduct 80% of the cost of buying and carrying tax-exempt bonds issued by municipalities whose annual issuance is lower than $30 million, up from the $10 million ceiling. It also temporarily removes the AMT from all tax-exempt bonds issued in 2009 and 2010, as well as from refunding bonds sold for debt issued in the five years before Jan. 1, 2009.
The letter comes as cities, states, and economic analysts are sounding alarms about the need for more federal aid to municipal governments in the midst of declining tax revenues at the state and local level. Ninety percent of city finance officers are finding it hard to meet their fiscal needs this year and will be less able to meet those needs next year, according to the NLC.
States and cities are expected to suffer from more severe budget shortfalls in the next two years, the group said, adding that the resulting spending cuts to balance budgets could impair the nation’s economic performance.
To prevent such a drag on the economy, the NLC said lawmakers should augment the $1.5 billion already provided in the ARRA for the Transportation Innovation Generating Economic Recovery discretionary grant program. The
TIGER program under the Department of Transportation received more than 1,380 applications for projects valued at $57 billion.
The lawmakers also should give states more money for water and sewer projects, building on the $6 billion federal aid for state revolving funds that was authorized by the ARRA, the group said, adding that doing so would stimulate near-term job creation.
In addition, the NLC urged Obama to support the enactment of other legislation to require credit rating agencies to rate muni and corporate bonds on the same rating scale and permanently allow the Federal Home Loan Banks to issue letters of credit for non-housing projects.
The NLC joined the Government Finance Officers Association and other muni market groups in another letter last week asking Senate Finance Committee chairman Max Baucus, D-Mont., and House Ways and Means Committee chairman Charles B. Rangel, D-N.Y., to include in any tax extenders bill the option to deduct state and local sales tax in lieu of state and local income tax from federal returns.
The groups also asked for a repeal of a legal requirements on governments to withhold 3% of their payments for goods and services. “Implementing this requirement will be extremely costly for state [and] local governments and do little to close the tax gap,” they said.
