WASHINGTON - State and local government officials told congressional lawmakers in two separate hearings yesterday that they need billions of dollars of direct aid from the federal government to combat the fiscal challenges they are facing.

The officials included Timothy Firestine, the chief administrative officer of Montgomery County, Md. He told House Ways and Means Committee members that "a perfect storm of bond insurance downgrades, the subprime mortgage crisis, the resulting global liquidity crisis and lack of confidence in the financial systems, has hit state and local governments, causing significant disruption in [the municipal bond] market, with no clear path to quick recovery."

The pleas came as lawmakers said yesterday that they plan to return for a lame-duck session after the November elections to consider a second economic stimulus package.

Rep. James L. Oberstar, D-Minn., chairman of the House Transportation and Infrastructure Committee, which held the other hearing, said the panel will begin assembling elements of the stimulus bill "to be considered Nov. 17, when the House reconvenes."

At the Ways and Means hearing, Firestine emphasized that the issues plaguing the municipal market are not due to problems with the credit of the issuers themselves, but rather because of the overall economic downturn driven by unrelated events.

Even though muni issuers managed to avoid many of the problems in other areas of the financial sector, Firestine said, the federal government has done nothing to help the tax-exempt sector apart from including tax-exempt money market mutual funds in the Treasury's temporary guaranty program.

"While local governments have not contributed to the problems of the credit crisis ... We are not receiving help, while the institutions and sectors of our economy who recklessly chose to gamble with 'cheap money' are being assisted," he said.

The Treasury and Federal Reserve should extend their authority to ensure governments' access to capital markets and buyers for their floundering short-term debt, Firestine said.

Furthermore, he said, Congress should remove the "burdensome" and "woefully out-of-date" tax code requirements on corporations that limit the amount of tax-exempt bonds they can purchase.

Firestine also urged congressional approval of a bill introduced this summer by House Financial Service Committee chairman Barney Frank, D-Mass., that would allow banks to purchase and hold muni bonds sold by governments that issue no more than $30 million in bonds annually. Currently, banks can only buy from issuers who issue no more than $10 million of bonds per year. That bill is pending before the Ways and Means Committee.

Congress should also pass the Municipal Bond Fairness Act, which would require rating agencies to adopt a universal rating scale for muni and corporate debt, Firestine said. The expected upgrades for muni issuers could lower debt issuance costs, he said.

Lawmakers also should consider eliminating the alternative minimum tax for some tax-exempt bonds to make them more attractive to investors, just as Congress did for housing bonds in the omnibus housing bill passed earlier this year, he said.

Meanwhile, New York Gov. David Paterson, a Democrat, told the committee that states need direct and immediate fiscal relief from the federal government. "Just like the financial services industry, we need a partner in the federal government in order to help stave off an impending calamity and stabilize our fiscal condition," he told the lawmakers.

But South Carolina Governor Mark Sanford, a Republican, spoke out against any financial relief package, warning of unintended consequences and unnecessary federal influence on state governments.

At the House Transportation and Infrastructure Committee hearing, members on both sides of the aisle called for a stimulus bill with transportation and infrastructure funds.

"I'm tired of hearing from pointy-headed economists ... that these projects take too long" to spur economic growth, said Rep. Peter DeFazio, D-Ore. "Even if they take too long, we still need them to be done."

The committee received testimony from at least 30 groups that made specific funding requests.

"This is not pork-barrel," said New Jersey Gov. Jon S. Corzine. "This is win-win." He said Congress should consider a stimulus in the $250 billion to $300 billion range, or 1.5% to 2% of the gross domestic product.

"The infrastructure investment component should include $75 billion in new investments that would focus on 'ready-to-go' and 'fix-it-first' projects that could begin immediately and employ over one million people," said John Irons, research and policy director for the Economic Policy Institute.

Furthermore, he said "deficit reduction must take a back seat to short-term stimulus for the moment." Congress should not balk at the idea of carrying $150 billion to $200 billion of stimulus debt, in addition to $700 billion for the Wall Street bailout, according to Irons. Total debt from both would not eclipse average national debt during the 1990s, he said. Irons said that if Congress spends $300 billion to $400 billion, or 2.4% of the GDP, that is "not going to solve the whole problem."

Irons said - and committee members agreed - states should have to show they would use the stimulus payments for infrastructure development within 90 to 120 days.

DeFazio proposed "that if the money isn't committed within six months, we will give it to someone else."

Speakers suggested new formulas to be used to apportion the funds, instead of the formula currently in use for federal aid to states, which typically is based on such things as miles driven or miles of interstate. Irons said to "look first and foremost at unemployment rates" of states to determine outlays.

Oberstar referenced a survey of 47 state transportation departments released in January by the American Association of State Highway and Transportation Officials that found 3,000 ready-to-go highway and bridge projects needing $17.9 billion to get started. The most recent stimulus package, which passed the House but not the Senate, would have provided $12.8 billion for transportation projects.

Speaking for AASHTO, Maryland Transportation Secretary John D. Porcari mentioned Maryland's postponement of $425 million of Garvee bonds to finance transportation projects. "Today, we simply do not have the state revenue we need," he said.

Meanwhile, airport executives asked for $1 billion for the Airport Improvement Program, which gives grants used to back tax-exempt bonds or to supplement other funding sources, such as bond proceeds. The American Association of Airport Executives also asked Congress to eliminate the AMT on airport private activity bonds.

The National Association of Clean Water Agencies projects there are about $4 billion in ready-to-go projects. Oberstar said the Council of Infrastructure Financing Authorities has more than $9 billion of state revolving fund projects ready to go.

Beverly Scott, chairwoman of the American Public Transportation Association and general manager and chief executive officer of the Metropolitan Atlanta Rapid Transit Authority, said $8 billion would start 559 ready-to-go public transit projects.

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