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WASHINGTON (Oct. 29, 2008) -- Montgomery County Chief Administrative Officer Timothy Firestine urged Congress Wednesday to relax restrictions that have made it increasingly difficult for state and local governments to finance their programs.
Firestine testified before the House Ways and Means Committee at a hearing on the needs of state and local governments during the current economic downturn.
State and local governments are hurting, and the $700 billion bailout Congress passed to assist Wall Street isn't helping Main Street, he said.
"Local governments have not contributed to the problems of the credit crisis," Firestine said. "We are not receiving help while the institutions and sectors of our economy who recklessly chose to gamble with cheap money are being assisted."
Those governments need assistance, such as lifting tax code requirements that limit the amount of tax-exempt bonds that can be sold to corporations, Firestine said, arguing that current limits "stifle demand and are woefully out of date."
The bill to do that is called the Municipal Bond Market Support Act of 2008, introduced in the House in June, he said. It would amend the Internal Revenue Code of 1986 to permit local governments to issue interest-deductible, tax-exempt bonds to banks.
Banks had long been major purchasers of tax-exempt bonds so they could then deduct the interest. The IRS code eliminated the deduction for bonds from governments issuing more than $10 million in bonds per year. The 2008 bill would raise the limit to $30 million, creating a greater market for government securities.
That would be "a win-win for all parties," Firestine said.
Firestine spoke for about seven-and-a-half minutes, talking about the county's stalled projects.
"In Montgomery County alone, we have capital projects ready to go but because of the uncertainty in the market, some of these projects may come to a halt," Firestine said. "It will be more expensive for governments to provide public safety programs, schools, roads, firehouses, libraries, public hospitals and other services."
Firestine also suggested that the Securities and Exchange Commission work with bond credit-rating agencies to develop a consistent system to more equitably rate municipal bonds. Montgomery County is rated AAA, the highest possible, but other jurisdictions aren't as lucky.
"Many governments are rated A," Firestine said, adding that investors often demand AA or AAA ratings. "Many governments would likely see their ratings upgraded if comparable scales are used, possibly leading to lower debt issuance costs."
With Maryland and other states struggling through budget deficits, several witnesses asked for direct federal assistance to create jobs and energize lagging state and local infrastructure.
Firestine was among 13 public and private officials scheduled to talk about their problems.
"Washington needs to step up and help states address a problem that was not of their own making," said New York Gov. David Paterson. "States need direct and immediate fiscal relief."
Wednesday's testimony will be weighed as Congress considers a new economic stimulus package. The House passed a $61 billion stimulus bill on Sept. 26, but it stalled in the Senate. A new bill is likely to be introduced when Congress returns after the election.
Capital News Service contributed to this report.