A bill introduced last week by California Congresswomen Anna Eshoo and Jackie Speier to restore the value of Lehman Brothers bonds held by state and local governments was submitted late yesterday as an amendment to the American Economic Recovery and Reinvestment Act.

The “Equitable Treatment of State and Local Governments Act of 2009” would put state and local governments and other public entities in the same position they would have held had the Treasury and Federal Reserve provided emergency financial assistance to Lehman Brothers as it did other financial institutions.  It directs the Secretary of the Treasury to purchase Lehman bonds from these public entities at face value.  The amendment is largely identical to the bill, except that it places a ceiling on expenditures for the bond at $10 billion.

Eshoo and Speier represent neighboring districts in the San Francisco Bay Area, where
local agencies were particularly hard-hit by the Lehman Brothers collapse. 

In a letter to President Obama when the bill was introduced, the congresswomen wrote:  “As you are aware, state and local governments are generally required to have the most conservative investment strategies and investing in Lehman Brothers bonds was considered such a safe investment.  Now those bonds are worth just pennies on the dollar and vital taxpayer funds have disappeared through no fault of the agencies involved.

“Schools, public safety and transportation authorities in our districts have been particularly hard hit by the Lehman failure.  For years, San Mateo County has pooled its investments from public agencies such as cities, the community college district, school districts and other tax-funded entities to maximize its investment and minimize risk.  When Secretary Paulson and Chairman Bernanke opted not to prevent Lehman Brothers from failing, San Mateo County was stuck with $150 million in virtually worthless Lehman Brothers bonds.” 

The Speier/Eshoo amendment will be considered this afternoon by the House Rules Committee prior to the final stimulus bill being voted on by the full House on Wednesday.

“The restoration of this money will go a long way toward helping government agencies restore jobs and vital services,” Speier said.  “In many cases, the funds lost were slated for capital improvement projects which benefit a community in both private and public sector employment, a principle reason why we need a stimulus package in the first place.”