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April 25, 2014

Federal Update

I. Pressure Building For Congress to Enact A New Transportation Program
II. NLC Prepares to Meet with New Treasury Department Office of State and Local Finance
III. Comment Period Begins on Proposed "Waters of the U.S." Rule

IV. FCC Hosts Webinar For State and Local Governments

V. Federal Disaster Relief Bill Proposed

Dear Mayor:

Here is an update on several Federal issues, important to New Jersey municipalities.

I. Pressure Building On Congress to Enact A New Transportation Program

With the current federal transportation program set to expire on September 30, 2014, the National League of Cities (NLC) and local leaders began to call for a new federal transportation program last year. Washington may be getting the message. Last week, U.S. Department of Transportation Secretary Anthony Foxx hit the road on a national bus tour to highlight the need for a new federal transportation program and the impending shortfall in revenues from the Highway Trust Fund to fund transportation investments. In an eight-state visit dubbed "Invest in America, Commit to the Future," Secretary Foxx spoke about the critical role that transportation plays in the local and national economy and warned of the consequences if Congress allows the nation's current transportation program to expire without a new national commitment to infrastructure investment. In addition to the Secretary's tour, the President has also signaled that he will send a transportation reauthorization measure to Congress for consideration as House and Senate committees begin their deliberations on a new program.

According to the Congressional Budget Office (CBO), “Under CBO’s baseline projections, the highway and transit accounts of the Highway Trust Fund will have insufficient revenues to meet obligations starting in fiscal year 2015. Under current law, the Highway Trust Fund cannot incur negative balances and has no authority to borrow additional funds…” As a result, under CBO’s baseline projections, the highway account may have to delay some of its payments during the latter half of 2014, or, as CBO notes: The Highway Trust Fund will not be able to meet obligations for highway and transit projects in fiscal 2015.

 The President’s proposed four-year $302 billion transportation spending plan includes $92 billion of surface transportation infrastructure funding in fiscal 2015, and his proposed four-year reauthorization of the current two-year law would provide $63 billion from a revamped corporate tax code to bolster the HTF. The current law authorized a total of $105 billion of spending over its 27-month span, but that required a transfer of almost $21 billion from the general fund.

The impending shortfall in the Highway Trust fund will have real consequences for transportation projects in local communities, and Congress needs to know about this. Does your municipality have a key project at risk of being delayed or cancelled if Highway Trust Fund resources are depleted? If so, send an e-mail to Jon Moran (at jmoran@njslom.com) and include your municipality's population, a description of the project(s) impacted, and the significance of the project to your community's transportation system. 

II. NLC Prepares to Meet with New Department of Treasury Office of State and Local Finance

Last week, the U.S. Department of Treasury announced the creation of a new Office of State and Local Finance that will focus (not surprisingly) on state and local finance issues, including distressed municipalities and their management of pensions and other unfunded liabilities. Treasury said the new office, which will be operational in mid-May will "[liaise with] state and municipal officials and associations, monitor developments in the bond markets, support policies to improve the management of public pensions and other liabilities, and develop potential federal policy responses to issues that emerge in municipal financing markets." Kent Kiteshew, formerly of JPMorgan Chase, will head the office.

NLC is already planning a meeting with Kiteshew to gain a better understanding of the office's role and scope. In a statement announcing the office, Treasury indicated that the idea for the office originated after the White House kept receiving requests for assistance by "troubled local governments," but lacked a centralized way of responding.

The heightened attention to notable cases of municipal fiscal stress has created many misperceptions regarding the overall financial condition of state and local governments, particularly concerning bankruptcy, bonds, and pensions. To address this concern, NLC and the national organizations representing the nation's governors, state legislatures, and state and local officials jointly released the 2014 edition of Facts You Should Know: State and Municipal Bankruptcy, Municipal Bonds, State and Local Pensions. The report details facts related to these issues and the degree to which they are having a financial impact on state and local governments. It also provides helpful links to reports documenting the fiscal health of states and localities, as well as the primary drivers of financial distress, where it exists. 

III. Comment Period Begins on Proposed "Waters of the U.S." Rule

This week, the U.S. Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (Corps) published a proposed rule to change the Clean Water Act (CWA) definition of "Waters of the U.S." The "Waters of the U.S." definition is used to determine whether individual water bodies are jurisdictional under the CWA and thereby subject to permitting and other CWA requirements. With publication in the Federal Register, the 90 day public comment period has begun.

Under the proposed rule, all tributaries and adjacent waters would be considered jurisdictional, as well as "other waters" that would have to meet a "significant nexus" threshold in order to be considered jurisdictional. This means that an increased number of water bodies, including stormwater infrastructure like ditches, channels, and conveyances, as well as green infrastructure construction and maintenance, could be subject to Clean Water Act Section 404 permitting requirements and state water quality standards for the first time.

According to the economic analysis of the proposed rule, including these waters as "waters of the U.S." could result in potential new costs for local governments.

The Agencies are accepting comments on the proposed rule through July 21. NLC will be submitting comments to protect the local government interest in this proceeding and urges cites and state leagues to file as well. If your city does file comments, please send a copy to jmoran@njslom.com

IV. FCC Hosts Webinar For State and Local Governments

Earlier this week, the Federal Communications Commission (FCC) Intergovernmental Affairs Office hosted a webinar for state and local governments. The program covered a range of communications issues including the need to modernize the e-rate program to the status of the wireless infrastructure siting rulemaking. In comments filed in the wireless siting Notice of Proposed Rulemaking (NPRM), NLC urged the Commission to respect the needs of local communities and to refrain from adopting formal rules that would impose a one-size-fits-all interpretation the law. Your New Jersey League of Municipalities has also been active on this matter. See our February 28 letter, which links to our formal comments, at http://www.njslom.org/letters/2014-0228-FCC.html The NPRM Order will likely be released in the fall timeframe. The archived FCC video of the webinar is available online.

V. Federal Disaster Relief Bill Proposed

U.S. Sen. Chuck Schumer of New York has introduced legislation, The National Disaster Tax Relief Act of 2014 (S. 2233) to provide tax relief for major disaster areas designated as such in 2012 and 2013. The proposal includes several state and local bond provisions, including one which would allow state and local governments to issue qualified disaster area recovery bonds. The disaster tax relief bill is similar to others Congress passed in the wake of the Sept. 11, 2001 terrorist attacks, hurricanes in 2005, and other recent major disasters.

One section of the bill would create a new section of the Internal Revenue Code for the qualified disaster bonds, which would be treated as exempt-facility bonds. The bonds could be issued by states or other political subdivisions that are in areas affected by federally declared disasters that occurred in 2012 and 2013.  At least 95% of the net proceeds of a bond issue would have to be used for the acquisition, construction, or renovation of residential rental property, nonresidential real property, docks and wharves, mass commuting facilities or public utility property that was destroyed by a federally declared disaster. The bonds would have to be issued before Jan. 1, 2016, and such bonds would be issued outside of state private-activity bond volume caps; however, no state could issue more than $10 billion of these bonds.

The bill would also allow one additional advance refunding for governmental bonds or one advance refunding of private-activity bonds for airports and docks and wharves if the issuer is in a state with a disaster area and the bonds being refunded were outstanding on the date the disaster occurred. Advance refundings would have to be issued prior to Jan. 1, 2017. A maximum of $4.5 billion of these advance refunding bonds could be issued in each state.

Another section of the bill would allow certain mortgage revenue bond (MRB) requirements to be relaxed if they serve people whose homes were destroyed or damaged during disasters occurring in 2012 and 2013. The proceeds of MRBs can be used to finance mortgage loans and provide rehabilitation loans. Normally, MRBs serve those who have not owned a home for at least three years, and the purchase prices of the homes financed have to be no more than 90% of the average area prices. But the bill would allow these bonds to be used for anyone whose principal home was destroyed or who was relocated because of a disaster in 2012 and 2013, and the purchase price could exceed 110% of the average area purchase price.  For those whose principal homes were damaged during a disaster, the bonds could be used to finance loans up to the cost of the rehabilitation or $150,000, whichever is smaller.

For more information or if you have any questions, contact Jon Moran at 609-695-3481, ext. 121 or jmoran@njslom.com

Very truly yours,

William G. Dressel, Jr.
Executive Director

 

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