By Larry Jones
May 25, 2009

Testifying before the House Financial Services Committee on behalf of The U.S. Conference of Mayors, Dallas Mayor Thomas C. Leppert told members of the committee on May 21 that the global credit crisis has made it difficult for state and local governments to borrow money in the credit market at reasonable interest rates to fund both large and small infrastructure projects. As a result, he said cities across the nation have pulled back on implementing these projects until market condition improve. He commended the committee’s chairman, Rep. Barney Frank (MA), for sponsoring several bills to help improve market conditions and increase local governments’ access to credit. Cities need better access to credit to improve their communities by building and repairing schools, firehouses, highways and water systems.

In providing an overview of the problem facing state and local governments in the credit market, Mayor Leppert pointed out that “According to BNY Mellon Asset Management, 2009 municipal issues are expected to decrease by an amount comparable to eliminating all federal highway and transit spending for one year.” He also mentioned that MMA Advisors estimates that more than $100 billion of planned new-money infrastructure projects were delayed in 2008 and the majority of that occurred in the fourth quarter. As the credit market has tightened since 2008, investor demand for municipal bonds has decreased continually and driven up the cost of borrowing to the point where many capital improvement projects are no longer affordable for many state and local governments.

Explaining this point Mayor Leppert said “Many capital improvement projects across the nation – both large and small – have been halted due to the lack of affordable access to the market and the inability of state and local governments to issue bonds.” Further, he explained, “At a time when we need to create jobs and economic activity, local governments have increasingly been unable to access the capital markets due to prohibitive borrowing costs. This lack of liquidity is holding back key projects that could, collectively, have an enormous impact on our national economy.” Thousands of short-term and permanent jobs that are currently on hold can be filled as soon as local governments gain access to credit at reasonable interest rates to fund these projects.

As an example of projects on hold, Mayor Leppert told committee members that the city of Dallas has several major projects, including substantial water and sewer infrastructure improvements to Love Field mandated by law, that the city would move forward with depending on the municipal markets’ return to a “normal state.” He said “Proceeding with these projects, today, would put people back to work and take advantage of reduced construction costs to the benefit of our taxpayers.”

In voicing support for the legislative proposals sponsored by Chairman Frank, Mayor Leppert said:

“The Municipal Bond Fairness Act, which would require rating agencies to rate municipal securities on the same scale as their corporate counterparts, will give investors a more accurate portrayal of the low risk of municipal securities;

The Municipal Bond Insurance Enhancement Act, which would increase the capacity of municipal bond insurers to insure new risks, will make it easier for issuers to borrow in the capital markets;

The Municipal Bond Liquidity Enhancement Act, which would create a federal liquidity facility for outstanding variable rate demand notes, will greatly help state and local governments access the short-term markets, particularly to address cash flow borrowing needs; and

The Municipal Financial Advisors Regulation Act, which would regulate financial advisors to state and local governments, will place financial advisors on the same playing field as the broker dealer community.”