Media Center « Press Releases »

Press Release

FOR IMMEDIATE RELEASE

April 9, 2008

Contact:
Neil Cotiaux, 412-335-9488
Peter Knight, 202-347-2666

English Proposal to Spur Economic Development Passes Ways & Means; Bipartisan Bill Addresses Municipal Credit Crunch; Now Goes to Full U.S. House

WASHINGTON, DC, April 9, 2008 - The U.S. House Ways and Means Committee’s approval today of an $11 billion housing stimulus package, “The Housing Assistance Tax Act of 2008," includes a provision that its original sponsor, Congressman Phil English (PA-03), worked vigorously to incorporate into the full measure.

Congressman English’s legislation, HR 2091, which now goes to the full House for consideration as part of the Tax Act, will allow municipal bonds backed by letters of credit (LOC) provided by Federal Home Loan Bank (FHLBank) member financial institutions to be treated as tax-exempt, lowering borrowing costs and making financing more flexible for public projects during the nation's ongoing credit crunch. Similar legislation, introduced by Congressman Sandor Levin (D-MI), is pending in the U.S. Senate.

“Municipal bonds have long been used as a critical tool for economic development in communities fighting to attract and retain well paying jobs at the local level,” said John R. Price, president of FHLBank Pittsburgh and Chair of the Bank Presidents Conference of the FHLBank System. “By closing an existing loophole in the tax code, Congressman English's farsighted legislation has a substantial positive benefit on municipalities and their taxpayers, allowing local government to access lower-cost capital to finance much-needed projects such as water and sewer, wastewater treatment, fire and police stations, libraries and other critical infrastructure.

“The congressman’s legislation will help bolster our nation’s economy during a prolonged credit contraction,” Price added. “We commend him for working diligently to get this meaningful legislation incorporated into the Tax Act."

Under current law, state and local governments are able to issue tax-exempt bonds to help fund community and economic development projects. To ensure that bond investors will be paid in full, FHLBanks provide a credit enhancement known as a letter of credit (LOC). The Internal Revenue Service (IRS) has classified FHLBank LOCs as a federal guarantee, triggering the loss of the bonds’ tax-exempt status. Since 1984, financial institutions such as Fannie Mae and Freddie Mac among others have been permitted under Section 149(b) of the Internal Revenue Code (IRC) to issue LOCs in support of state and municipal tax-exempt bonds.

The English proposal updates the U.S. tax code to exempt FHLBank LOCs from its current classification as a federal guarantee. This measure is useful especially for cities and other municipalities with high-risk credit because it will expand such municipalities’ access to credit and reduce the cost to taxpayers.

The English proposal has been endorsed by scores of national, state and local organizations including the National League of Cities, United States Conference of Mayors, America’s Community Bankers, Independent Community Bankers of America, National Association of Homebuilders, National Association of Health and Educational Facilities Finance Authorities and the American Hospital Association.

“Congressman English has worked tirelessly for the people of this area,” said Erie County Executive Mark DiVecchio. “We appreciate his hard work and vigilance on House Bill 2091.”

“Clearly, HR 2091 and its goals are endorsed by Pennsylvania State Association of Boroughs members throughout the Commonwealth and we continue to encourage Congressman English in the passage of this vital legislative initiative,” stated PSAB President Tom Oliverio.

“Congressman Phil English is a dynamic leader for legislation that strengthens American homes and communities,” said Brian A. Hudson, executive director and CEO of the Pennsylvania Housing Finance Agency. “His sponsorship of this important measure comes at just the right time to help rebuild our nation’s infrastructure, improve its dwellings and bring the promise of a better life to millions.”

The 12-Bank FHLBank System was created by Congress in 1932. Its approximately 8,100 local lender members enjoy a steady stream of low-cost liquidity through all economic cycles. In recent months, FHLBanks have provided commercial banks, savings and loans and credit unions with a record amount of liquidity in the face of tightening credit markets. The AAA-rated FHLBank System uses private capital in pursuit of its public mission of affordable housing and community and economic development.