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Letter of Credit Legislation to Help Communities with Economic Development, InfrastructureLegislation
introduced in Congress will help local communities raise funds for
water treatment facilities, infrastructure improvements, industrial
development, public healthcare facilities, fire stations, parking
facilities, long-term care for the elderly, schools and other important
activities.
H.R. 5177 was introduced in the House by U.S. Rep. Phil English (R-PA), a member of the Ways and Means Committee. He was joined as an original co-sponsor by Ways and Means member Sander Levin (D-MI) and the Chairman and Ranking Member of the House Capital Markets Subcommittee U.S. Rep. Richard Baker (R-LA) and U.S. Rep. Paul Kanjorski (D-PA). S. 3657 was introduced in the Senate by U.S. Sen. Rick Santorum (R-PA), a member of the Senate Finance Committee. The legislation amends Section 149 of the Internal Revenue Code (IRC) to add FHLBanks to the list of GSEs that can credit-enhance tax-exempt municipal bonds. Since 1984, the IRC has permitted Fannie Mae, Freddie Mac, FHA and VA to issue these letters of credit (LOCs). In 1984, when Congress explicitly authorized LOCs by the other GSEs on tax-exempt bonds, FHLBanks did not offer LOCs. Now they do. This amendment would allow FHLBank members to assist municipalities in lowering their funding costs for community and economic development when issuing tax-exempt bonds by providing FHLBank LOCs without triggering the loss of the bonds’ tax-exempt status. What the experts are saying… "FHLBank
letters of credit will provide needed competition in the municipal
credit enhancement market benefiting local governments and taxpayers." "Many
local governments are caught between the need to improve aging infrastructure
and the need to keep municipal taxes reasonable. Legislation like
this will be a tremendous help as municipal officials work hard
to provide the best infrastructure at the best possible cost to
taxpayers." "The
Federal Home Loan Banks are uniquely positioned to work within communities.
Their record of accomplishment and fiscal responsibility clearly
warrants favorable consideration of this legislation, which will
provide an additional opportunity to lower the cost of capital for
affordable housing." "Finance
mechanisms like municipal bonds are of critical importance to municipalities
because they fund the building of local infrastructure, housing,
hospital development projects, redevelopment of rural and urban
areas and municipal utilities. Allowing Federal Home Loan Banks
to provide credit enhancement on tax-exempt municipal bonds will
provide local governments with a new financing tool to achieve these
important projects." "In
today's stressed tax environment that exists for local municipalities
and school districts, elected officials are constantly striving
to provide the necessary services while minimizing the tax impact.
Consequently, legislation permitting FHLBank letters of credit creates
a win-win situation. It does not deteriorate the credit-worthiness
of the municipality while still providing the potential of significant
savings in the bond issuance and, hence, tax savings to the taxpayer." “H.R.
5177 would provide an important tool for banks in Pennsylvania and
across the country to use in supporting the economic development
efforts of the communities they serve." “H.R.
5177 would potentially help school districts lower the costs for
expensive school projects, such as bus purchasing and building construction." Groups that Support H.R. 5177 and S. 3657 National
State & Local
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