House Seeks To Improve Municipal Bond Market

By Stephen Barlas, Washington Editor | September 2008 Vol. 63 No. 9

Local sewage infrastructure projects would get a boost from legislation a House committee approved on July 30.

The House Financial Services Committee approved the Municipal Bond Fairness Act (H.R. 6308) by a voice vote, indicating that the bill was non controversial, and could be passed by the House quickly and sent over to the Senate. The bill requires credit rating agencies, which have come under severe fire in the past year, to use the same criteria for rating municipal bonds as other bonds.

Rep. Barney Frank (D MA), chairman of the committee and the sponsor of the bill, notes that counties, cities and states have to pay higher interest costs than are necessary on sewer bonds because they are not rated on the same scale as corporate bonds. If they were, municipal bonds, which almost never default, would have much higher credit ratings, and localities would have to pay less in interest. At hearings in March, Rep. Spencer Bachus (R AL), top Republican on the Frank committee, related how his home county of Jefferson County, AL, has had to more than triple the interest rate it offers on its sewer bonds, from three to 10 percent.

The National Utility Contractors Association (NUCA) has endorsed the Frank bill. NUCA is concerned that local governments are having difficulty both selling sewage bonds to the public and raising funds through the sale of general revenue bonds, revenue that could be used as the city or county 20 percent match for a loan from the Clean Water State Revolving Fund.

SRF funding has been badly crimped this decade, falling from what had been a normal level of $1.35 billion a year to the Bush administration’s proposal for fiscal 2009 of $555 million, continuing a trend from previous administrations. That has increased the importance of sale of sewage bonds, since SRF loans are now hard to come by. However, it is likely that Congress will appropriate more than $555 million. The House appropriations subcommittee with responsibility for the Clean Water SRF bumped the total up to $850 million for fiscal 2009, which begins on Oct. 1. It remains to be seen whether that figure stands up as the appropriations bill moves through the entire Congress. Meanwhile, Democrats have talked about a second economic stimulus bill which could include additional funds for the Clean Water SRF along with other “infrastructure” spending.