77th Annual Meeting

SOLUTIONS FOR THE MUNICIPAL SURETY BOND CRISIS

WHEREAS, cities issue revenue bonds to raise capital for needed public projects; and

WHEREAS, these bonds are payable from various revenue sources of the cities; and

WHEREAS, purchasers of these bonds usually require them to be secured by a debt service reserve fund, requiring the city to pledge those assets as additional security for the repayment of the bonds only to be used if the primary revenue source for the repayment of the bonds is not sufficient to pay the debt service on the bonds; and

WHEREAS, over the years insurance companies who insure municipal bonds also began providing surety bonds for debt service reserve funds so that instead of having to take the debt service out of the proceeds of the bond or finding other money, the city could pay a premium to one of the bond insurers and deposit a surety bond into the reserve fund; and

WHEREAS, the use of surety bonds to fund reserve funds became a very common practice, with thousands of outstanding bonds issued by cities secured in this manner; and

WHEREAS, the provider of the surety bond have been required to maintain certain ratings from national rating agencies such as Standard & Poor's and Moody's but have received varying degrees of rating downgrades, so that not one single bond insurance company is rated AAA by both of these rating agencies, creating deficiencies in the reserve funds and threatening to put the bonds in technical default; and

WHEREAS, if the deficiencies are not remedied, the municipal issuer is left with trying come up with cash to restore the required balance in its reserve fund, a difficult to impossible task; and

WHEREAS, any unnecessary funding which cities would need to allocate to address this crisis would negate the increase in resources that a City derives from the Recovery Act;

NOW, THEREFORE BE IT RESOLVED, that the U.S. Conference of Mayors urges the Congress and the Obama Administration to work directly with Mayors to immediately address this problem and develop workable solutions as soon as possible.