Relief in Sight for Financing of Critical Public Projects, Community Leaders Told

Business Wire,  June 18, 2008  

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PITTSBURGH -- The market crisis preventing many US municipalities and community institutions from securing low-cost financing for key public projects can be brought under control with a vital piece of legislation gaining momentum in Congress, community development leaders were told today.

In an address to development officials at the annual meeting of the National Community Development Association (NCDA), John R. Price, chairman of the Bank Presidents Council of the Federal Home Loan Bank system and president of FHLBank Pittsburgh, urged community and economic development leaders to rally behind legislation designed to soften the blow of the ongoing credit crunch and recent downgrades of bond insurers. The bipartisan legislation, which passed the US House last month and which is pending this week in the US Senate, will allow local leaders to get key infrastructure projects such as water and sewer, wastewater treatment, libraries, hospitals, fire stations and other facilities off the drawing board and funded more cost effectively than at present, Price stated. NCDA has endorsed the legislation.

"While municipalities used to have their borrowing costs reduced by securing AAA credit support from bond insurers, this support has, in many and often poignant circumstances, collapsed," Price said. "The failure of bond insurers to assure AAA borrowing costs has left bond issues of tens and even hundreds of millions of dollars with such high financing costs as to impose great burdens on localities and even give them pause about proceeding to market," the FHLBanks head stated.

In line with a desire to expand their current commitment to community and economic development alongside its 75-year affordable housing mission, Price said a number of the nation's Home Loan Banks are working with Sens. Jay Rockefeller (D-WV), Arlen Specter (R-PA), Robert Casey (D-PA) and other supporters on Capitol Hill to enact legislation that will allow the AAA-rated, congressionally chartered FHLBanks to issue letters of credit to credit-enhance tax-exempt municipal bonds, setting the stage for new, cost-effective financing of a variety of bond issues. These issues are especially relevant to smaller communities. "Financing for any number of municipal projects could now occur at lower interest rates, or under more flexible terms," Price explained.

The legislation has won the backing of 19 national organizations including the National League of Cities, National Association of Counties, US Conference of Mayors, Securities Industry and Financial Markets Association, American Hospital Association, National Association of Homebuilders, NCDA and other advocates.

Constant liquidity for communities

In addition to filling the void that exists in the municipal finance market, Price told the NCDA that the nation's twelve Home Loan Banks would continue to extend as much low-cost liquidity as is needed by the 8,100 local lenders who are the members of the FHLBanks, which are private, independently managed regional financial cooperatives.

"The Federal Home Loan Banks dramatically increased their lending at the onset of the credit crunch last summer, putting into the financial sector more than two and a half times the liquidity that the Federal Reserve provided during those crucial first three months," Price said. He noted that, as of March 31, 2008, total low-cost loans outstanding at the nation's FHLBanks amounted to $913 billion. He said the FHLBanks' supply of liquidity will continue to expand and contract based on the daily needs of local lenders during all economic conditions.

Price encouraged NCDA members to get to know their regional Home Loan Banks better so that they might tap into the Banks' array of community investment programs, affordable housing grants and other programs and technical assistance, working in tandem with community lenders.

About NCDA and the banks

The National Community Development Association is a nonprofit organization comprised of more than 550 local governments that administer federally supported community and economic development, housing and human service programs, including programs of the US Department of Housing and Urban Development (HUD), Community Development Block Grants (CDBG) and the HOME Investment Partnerships programs. Since 1968, NCDA has been at the forefront in securing effective and responsive housing and economic development programs for local governments.

With assets of approximately $1.3 trillion as of March 31, 2008, the nation's twelve FHLBanks are government-sponsored enterprises created by Congress in 1932. The Banks use private capital in pursuit of a public mission. Approximately 8,100 banks, savings and loans, credit unions and insurance companies comprise membership in the Federal Home Loan Bank system.

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