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Washington, DC - House Financial Services Committee Chairman Barney Frank today announced that the committee will hold a hearing on March 5, 2008, at 9:30 a.m. to examine the impact on state and local governments and other municipal authorities as the current credit crisis worsens. At issue is the availability and cost of credit for municipalities and the corresponding impact to the economy if states and local jurisdictions have to eliminate or scale back on needed projects and services. The committee will also examine the extent to which the bond insurance industry contributed to the collapse of the auction-rate securities market and what can be done to aid local jurisdictions. The impact on localities could be multiplied due to the slumping housing market values and the dependence on property tax revenues to fund schools and other services.
“It is now clear that state and local governments have become the innocent victims of the credit crisis and they are being unfairly punished for market conditions far beyond their control. This committee will place a very high priority on this issue,” said Chairman Frank. “Cities and states may now be forced to pull back or significantly decrease infrastructure investments and other vital services, which is the wrong thing economically and will leave shortfalls in this critical area.”
Specifically, the March 5th hearing will explore the role of the credit rating agencies, the impact of monoline bond insurers and what can be done to protect cities and states. Of particular concern are the overall economic problems associated with cuts in infrastructure spending or reduce services.
Frank concluded, “Municipal bonds are among the safest—second only to US Treasuries—in terms of losses to investors, and it will be of particular concern to this committee that they not be punished by the worsening credit market and overall economic picture.”
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