February 3, 2003

Felix Rohatyn, former Ambassador to France under President Clinton, and former Chair of the Municipal Assistance Corporation in New York City, addressed the country's mayors at their 71st Winter Meeting in Washington (DC) on January 24.

Rohatyn called for a $75 billion fiscal aid package to states and local governments to stimulate the national economy. The proposed package would be phased in over three years and would help to offset potential tax increases many states and cities are imposing in response to their current fiscal crisis

In addition, Rohatyn called for a $75 billion reduction in the payroll tax providing short-term assistance to workers and allowing them to spend more money to jump'start the economy.

The Ambassador called President Bush's proposal to eliminate the double tax on dividends both expensive and ineffectual and told the mayors it should be dropped. "A package that would assist local governments by direct budget assistance, and provide tax relief to Americans at middle income levels, is more likely to provide real short term stimulus to the economy," he said.

He also described how local infrastructure and public investments are critical components of the national economy as well as national security. The Ambassador called for a $250 billion infrastructure program that would create several million jobs, which he said was urgently required to balance flagging private investment.

He urged the federal government to provide credit enhancement, through guarantees or leases, to free up tens of billion of dollars of pension fund assets to finance public investment in high speed rail, and a variety of other infrastructure needs.

Rohatyn indicated that the nation's economy was more likely to become worse before it gets better. He believes the projected deficits for both New York City and New York State will exceed their present levels. "The current weakness of the dollar combined with the weakness of the markets is ominous combination for the future," he told the mayors.

Rohatyn said he thought it was good economic policy to increase the federal budget deficit temporarily for programs to make cities healthy economically. But he continued, "we can not tolerate permanent increases in the deficit beyond a certain point." He said that U.S. national debt (33 percent of GDP) is significantly below the European unions 60 percent debt limit. However, "By choosing absolute military dominance as basic security doctrine instead of collective security, we are committed to significant and continued large'scale increases in the military budget. These commitments cannot be financed, in the long run, with ever increasing debt," he cautioned the mayors.