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Local Government Finance


Classify Municipal Securities as High quality liquid assets

In September of 2014 the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency (OCC) approved a rule establishing minimum liquidity requirements for large banking organizations. The liquidity coverage ratio rule was designed to ensure that large banks maintain liquid assets that can easily be converted to cash during times of national economic crisis. The rule identifies High Quality Liquid Assets (HQLA) to meet this requirement, but failed to include municipal securities in any of the acceptable investment categories (despite including foreign sovereign debt!). 

On February 1, 2016 the House voted to approve HR 2209, bipartisan legislation that would require federal regulators to classify all investment-grade, liquid, and readily marketable municipal securities as high quality liquid assets (HQLA). This important legislation is necessary to amend the liquidity coverage ratio rule approved by federal regulators last fall, which classifies foreign sovereign debt securities as HQLA while excluding investment-grade municipal securities in any of the acceptable investment categories for banks to meet new liquidity standards.

TAX EXEMPTION FOR STATE AND LOCAL MUNICIPAL BONDS

As Congress and the Obama administration look for ways to reduce federal spending, there is continued discussion of limiting the tax advantages of municipal bonds. If the amount of bond interest that can be excluded from earners' taxable income is limited, some analysts predict it would:

  • Reduce demand in the municipal bond market.
  • Increase borrowing costs for state and local governments.
  • Lessen funding to local governments for infrastructure needs.

A group of 50 national organizations, including ICMA and its fellow Big 7 members, have signed on to three “Dear Colleague” letters (one each to the HouseSenate, and President Obama) urging them to maintain the current tax-exempt status of municipal bonds. 

Combine MFA with ITFA 

ICMA, along with the Big 7 national associations representing cities, counties, governors, and state legislators, released a letter to Congressional leaders on November 18, 2014, urging Congress to combine the Marketplace Fairness Act (MFA) with a temporary extension of the Internet Tax Freedom Act (ITFA) this year.

ICMA Supports Marketplace Fairness and Internet tax issues

A new bipartisan bill in the Senate combines the Marketplace and Internet Tax Fairness Act.  ICMA has joined state and local government associations supporting Senate Bill 2609, which levels the playing field between Main Street merchants and remote sellers and extends the moratorium on Internet taxes for 10 years while retaining the grandfather clause. 

ICMA has joined with mayors, county executives and commissioners, council members, and other appointed local officials to urge support for the Marketplace and Internet Tax Fairness Act. Here are talking points to remind congressional members of the importance of a long-term transportation financing solution and urge their support of the Marketplace and Internet Tax Fairness Act.

icma opposes the permanent ban on Internet Taxes

The most recent estimate from the Congressional Budget Office indicates that H.R. 3086 would cost local and state governments hundreds of millions of dollars in lost revenues.  ICMA joined state and local government associations opposing this legislation.

ICMA URGES ACTION ON TRANSPORTATION FUNDING

As the Highway Trust Fund (HTF) comes close to insolvency, ICMA and the national associations representing local and state governments have again urged Congress to find a long-term fix for the HTF and pass a multi-year surface transportation authorization bill.

State and local pensions

Detroit’s bankruptcy and Chicago’s pension problems have prompted a wave of speculation about city finances. The underlying problems in financially troubled cities have been decades in the making:  population loss, declining tax bases, and other patterns of fiscal mismanagement. A new issue brief, Are City Fiscal Woes Widespread? Are Pensions the Cause (December 2013), by the Center for State and Local Government Excellence looks into the facts and explores the extent to which economic factors, poor fiscal management, and/or high pension costs contribute to the challenges cities with financial problems face.

The Center has also released a series of case studies, Success Strategies for Well-Funded Pension Plans, which highlight the practices that public pension systems with a long track record of being financially sound have in common.

Municipal bankruptcy

Concerns about municipal bankruptcy continue. While a handful of municipalities have filed for bankruptcy protection, the problem is overstated, as Center for Local Government Excellence CEO Beth Kellar points out in her blog post.

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