By Larry Jones
November 11, 2008

Testifying before the House Ways and Means Committee on October 29, immediate Past President of the U.S. Conference of Mayors Trenton Mayor Douglas H. Palmer borrowed a title from a Beatles song to explain what cities stand in need of as a result of the economic crisis: “Help! I Need Somebody.” He told members of the committee that cities across the nation are facing severe budget shortfalls and finding it increasingly difficult to access the capital markets at acceptable rates as a result of the economic crisis.

In response to the economic meltdown, Palmer urged members of Congress to move quickly to enact a second stimulus package that will create jobs, improve the nation’s infrastructure, help small businesses on main'street, and have a lasting economic and environmental impact. The House Ways and Means Committee invited Palmer, along with New York Governor David Patterson, South Carolina Governor Mark Sanford and other panelists, to share information on how the economic crisis is affecting American families as well as state and local governments.

In explaining the impact of the crisis on cities, Palmer told members of the committee that “The fiscal condition of cities has declined significantly since 2007.” Citing findings from an annual report (The City Fiscal Condition Survey) published in September by the National League of Cities, Palmer pointed out that two out of every three cities surveyed in 2008 reported that they were less able to meet their fiscal needs than in 2007. By contrast, he said 70 percent of cities in last year’s survey reported they were better able to meet their fiscal needs than in 2006.

He provided several examples of how certain cities are struggling to deal with the economic crisis, starting with his own city of Trenton. He explained that almost one third of the city’s land area is owned by the state, which means that 53 percent of all properties are exempt from the city’s property tax, the city’s main source of revenue. To make matters worse, he said New Jersey is facing a $4 billion deficit next year. This translates into a $4.6 million reduction in state aid to Trenton this year.

In response to his city’s fiscal problems, Palmer told members of the committee that the city has instituted a major workforce reduction plan which includes layoffs, demotions and elimination of most personnel vacancies, including 16 police officer and 13 firefighter vacancies and the demotion of 13 fire captains. “In all we will be eliminating over ten percent of our workforce. This will reduce budget appropriations by $7.4 million, but we will still have to close the remaining $18.8 million shortfall. If the city can not find a way to close this gap, the tax rate will increase by 43 percent,” he said.

In his written testimony, Palmer also explained how the economic crisis is affecting 4 other cities: New York, Chicago, Atlanta and Sacramento, as well as the drastic steps those cities are taking to balance their budgets.

In summary, Palmer told the committee, “The economic meltdown sweeping across our nation and the globe, threatens to subject many local governments to budget shortfalls far into the foreseeable future. It is clear that the economy needs a shot in the arm to nurture it back to a healthy recovery. Now that Congress has enacted a $700 billion package to bail out Wall Street, we strongly recommend the enactment of a MainStreet Stimulus package.” He urged that the following programs be included in such a package:

• Community Development Block Grants

• Energy Block Grant for Infrastructure and Green Jobs

• Transit Equipment and Infrastructure

• Highway Infrastructure

• Airport Technology and Infrastructure

• Amtrak Infrastructure

• Water and Waste Water Infrastructure

• School Modernization

• Public Housing

• Public Safety Jobs

Palmer also called on members of Congress to take action to ensure that local governments have continued access to short-term credit. He explained that due to problems in the domestic and global financial markets, state and local governments are finding it increasingly difficult to access the capital markets at commonly acceptable rates. “Cities across the country are especially having difficulty selling bonds and accessing short-term credit,” he said.

To address this problem, Palmer recommended that Congress direct the Federal Reserve and the Treasury Department to work together to find a way under the recently enacted $700 billion bailout package to create a facility to provide a funding backstop to the state and municipal government debt market similar to the newly created Commercial Paper Funding Facility (CPFF), which provides a liquidity backstop to U.S. issuers of commercial paper.

The CPFF is designed to improve liquidity in short-term funding markets and significantly increase the availability of credit for businesses and households. But the Federal Reserve said recently that the CPFF would not be extended to tax-exempt commercial paper or other short-term debt instruments. If support is not extended to tax-exempt commercial paper, Mayor Palmer told members of committee “state and municipalities would face ever-increasing costs to manage their short-term debt.”