WASHINGTON - A House subcommittee chairman, five state and local groups, and a Florida official are urging the Treasury Department and Federal Reserve to modify their commercial paper and troubled asset purchasing programs to include state and local governments, which are struggling under the current the credit crisis.

Municipalities have an "immediate need for short-term access to cash," Rep. Paul E. Kanjorski, D-Pa., said in a letter sent yesterday to Treasury Secretary Henry Paulson and Fed chairman Ben Bernanke.

He asked the federal officials to notify him by Oct. 30 if legislative action is needed to "enhance the ability of the federal government to assist states and localities" and hinted that Congress may include state and local aid in a potential second stimulus package when it convenes after the election.

"I urge you to use your existing powers and new initiatives, including the Troubled Asset Relief Program and the Commercial Paper Funding Facility, to help states and localities during these difficult times," Kanjorski said in the letter.

Under the TARP, the Treasury plans to focus on buying toxic mortgage-backed securities from financial institutions. The Fed's CPFF program will buy unsecured and asset-backed paper from corporations and financial institutions. Federal officials have said there are no current plans to include state and local debt in these programs.

But Kanjorski told the federal officials: "At a time when financial institutions and commercial corporations are receiving extraordinary help directly from the federal government, we cannot turn our backs on states and localities."

"As the value of homes continues to decline, the sale of new homes slows, the unemployment rate rises, and consumer spending decreases, these revenue sources are diminished," he wrote.

Spending by states and municipalities accounts for 12% of gross domestic product, Kanjorski said, adding that a contraction in the governmental sector will lead to a worsening of the economy.

Kanjorski's letter came as five state and local groups sent a letter to Bernanke urging the Fed to buy tax-exempt commercial paper through its CPFF. States and municipalities will be "saddled with ever-increased costs" if they cannot receive short-term funding, the groups said.

"We strongly suggest that the Fed determine a mechanism that would allow for the ability to purchase tax-exempt securities under the Federal Reserve Act and the CPFF," they added.

The groups are the National Association of Counties, the National Association of Local Housing Finance Agencies, the National Association for County Community and Economic Development, the American Public Works Association, and the National Association of County Collectors, Treasurers, and Finance Officers.

Florida Chief Financial Officer Alex Sink also sent a letter Tuesday to Bernanke requesting the Fed include government commercial paper in the CPFF.

"Including the tax-exempt municipal bond market in your CPFF will help stabilize the short-term tax-exempt bond market and hopefully facilitate a return to more normal market conditions," Sink wrote. "I encourage you to include state and local governments, in addition to commercial entities, as you work to resolve the credit crisis."

The Fed will review and respond to the letters "as soon as possible," a spokesman said yesterday.

All three letters said the CPFF would stabilize the short-term borrowing market. Short-term rates surged after the bankruptcy of Lehman Brothers Holdings Inc. in September. The SIFMA municipal swap index, a measure of short-term interest rates, was 4.82% on Oct. 8, down from a high of 7.96 in late September. Municipalities, universities, and hospitals may issue tax-exempt commercial paper to fund daily costs for a construction project before issuing longer-term revenue bonds to pay the project's total cost.

Michael Decker, co-CEO of the Regional Bond Dealers Association, said yesterday that there is no reason for tax-exempt commercial paper to be excluded by the Fed. For the issuers that use commercial paper, it is a significant source of financing, he said.

"The market is quite broken now," Decker said. "I'd like to think that the Fed will come around and make the right decision."

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