National League of Cities gets recommendations for bond enhancement

By Susanna Moon

Chicago, Jan. 12 - National League of Cities said the Blue Ribbon Commission on Municipal Credit Enhancement, convened last fall, made several recommendations to improve market access and reduce municipal borrowing costs.

The commission called for investigating the feasibility of creating a mutual guarantor for municipal bonds.

The proposed entity could insure new fixed-rate securities covering general obligation bonds and revenue bonds issued by cities, counties and school districts. The company would be owned and operated by its members for the benefit of members.

The commission suggested seeking federal support for capitalization of the new company, a federal guarantee for the company or reinsurance through the Troubled Assets Relief Program or the Troubled Assets Insurance Finance Fund.

Also in the report, the commission recommended several changes in current tax law. First, the report details a need to increase the amount of bonds that can be issued by small issuers that are eligible for bank deductibility to $30 million from $10 million. The commission also recommended changing the 2% de minimis rule, which would allow more corporations to deduct certain costs incurred when purchasing tax-exempt debt.

"Our nation is at a turning point for municipalities," NLC executive director Donald J. Borut said in a press release. "They suffer from decreasing tax revenues, increases in social services needs and now have trouble getting access to credit markets.

"If we as a nation do not find a vehicle to provide access, we could see our nation's cities and towns in dire financial straits. Access to the markets isn't just important; it is absolutely vital. We appreciate and are supportive of the commission's work and look forward to discussing the recommendations."

The 17-member commission consisted of issuer representatives, bond lawyers, underwriters, financial advisers, academics, rating agency and retirement system staff and bond insurance professionals. Bob Inzer, clerk of the court, Leon County, Fla., chaired the commission, and Pat Born, chief financial officer, Minneapolis, served as the vice chair.

The National League of Cities is the nation's oldest and largest organization devoted to strengthening and promoting cities as centers of opportunity, leadership and governance.

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