As I mentioned in the post below about student loans the credit crisis is affecting much more than just homes now. The tightening markets for credit are also impacting municipal governments. Your local school districts, counties and other municipalities fund their capital (major, long term buildings like schools, prisons, courthouses, etc) through the bond markets. They bundle some of these loans to get lower rates. Any local long term project, be it bridges, sewer systems, water reservoirs and other major projects necessary to provide basic services, are financed over the long term.
Municipal bond insurers guarantee these loans. Without bond insurance few investors will purchase (invest) these debt instruments. Bond insurance is the glue that puts such deals together. Your local township or borough doesn't have a track record long enough to satisfy lenders that they'll get repaid so these bonds have to be insured.
Congressman Paul Kanjorski has been working to boost this segment and insure that municipal bonds and the projects they finance don't crumble. Kanjorski
"applauded House Committee on Ways and Means Chairman Charles Rangel (D-NY) for including H.R. 2091 as Section 143 of H.R. 5720, the Housing Assistance Tax Act of 2008, and for moving quickly to pass the bill during a mark up in the Committee. It passed by a bipartisan vote of 35-5. Section 143 would help lower municipal borrowing costs as a result of ongoing problems in the bond insurance marketplace. Chairman Kanjorski has led the recent effort in the House to examine problems with bond insurers and he has worked diligently for several years to enact H.R. 2091 into law.
“I commend Chairman Rangel for swiftly passing this important legislation in his Committee. Section 143 of H.R. 5720 will aid many communities throughout the country now experiencing higher borrowing costs as a result of turmoil in the bond insurance industry,” said Chairman Kanjorski. “The legislation will help States and municipalities, like Wilkes-Barre in my own Congressional District in Pennsylvania, to continue issuing the low-cost, tax-exempt bonds that provide the capital needed to construct roads, build hospitals, renovate schools, repair bridges, and ease budgeting constraints. Ensuring that municipalities continue to have access to affordable bonds will help alleviate some of the problems caused by the current strain in our credit markets.”
“Capital Markets Subcommittee Chairman Kanjorski is to be applauded for his efforts to help solve the problems in the municipal bond marketplace,” Wilkes-Barre Mayor Thomas M. Leighton. “His legislation, H.R. 2091 will allow bonds guaranteed by the Federal Home Loan Banks to be treated as tax exempt bonds. This will offer communities like Wilkes-Barre access to another AAA financial guarantee source, which will help lower our borrowing costs.”
The Federal Home Loan Banks and their members are the largest source of residential and community development credit in the United States. The system consists of 12 regional banks that together serve 8,100 community banks, thrifts, credit unions, and major financial institutions.
“Congressman Kanjorski’s active support of this legislation will help bolster our nation’s economy during a prolonged credit contraction,” added John R. Price, president of FHLBank Pittsburgh and Chair of the Bank Presidents Conference of the FHLBank System. “We commend him for working diligently to get this meaningful legislation through Congress, most especially by circulating a letter of support among his colleagues in the aftermath of the downgrading of some key bond insurers.”
The current credit crunch and uncertainty in the bond insurance marketplace have raised borrowing costs and affected the ability of States and localities to issue bonds. Section 143 of H.R. 5720 would help to fix these problems by allowing bonds that are guaranteed by Federal Home Loan Banks to become eligible for treatment as tax-exempt bonds. Except for a two-year sunset period, Section 143 is similar to H.R. 2091, which Chairman Kanjorski helped to reintroduce in 2007.
In late February, after convening the first congressional hearing on problems in the bond insurance marketplace, Congressman Kanjorski led 40 bipartisan Members of the House Financial Services Committee in sending a letter to Chairman Rangel and Ranking Member Jim McCrery (R-LA) advocating the adoption H.R. 2091 as a solution to help lower municipal borrowing costs."