Local governments use both long and short term credit for a variety of purposes, a major percentage of which are public works and other capital projects. These projects often require the use of engineering firms and construction companies, and result in significant economic development at the local level. A recent National Association of Counties survey showed that 71 percent of respondents were concerned about their ability to issue bonds because of current financial conditions and the increasing costs of short and long term borrowing.

In the state of Florida, counties are being faced with declining property values, reduced revenues, substantially lower returns on investments, and now in part due to the seizing of the commercial paper market, a lack of affordable financing options. Local governments are a significant part of the economy equating to billions of dollars of capital projects which drive economic engines at the local level. Many projects are now at a standstill due to a lack of capital.

Below are two concrete examples of Florida projects that are currently delayed due to the credit crisis. These are projects that would stimulate local economies and get the construction industry and its employees back to work.

Collier County, Florida
One project which is being shelved as a result of the illiquidity in the commercial paper market is the construction of a major road project linking Ava Maria University to Interstate 75 and the urban area of the County. This $50 million project was scheduled to be funded with tax-exempt commercial paper and was anticipated to spur the growth and development of both the university and the surrounding suburban area. The multiplier effect of this $50 million project and the growth that would have been stimulated by this project would have been of benefit to the economies of Collier and Lee Counties. Without financing from tax exempt commercial paper, this project may be moved out several years – the lost benefits will never be recaptured.

Manatee County, Florida
In Manatee County, Port Manatee (one of Florida's major seaports) is a significant economic engine and is one of the foundations of economic activity in the South Tampa Bay Region. In the spring of 2008, Port Manatee was planning to finance additional infrastructure improvements in an effort to capitalize on increased shipping traffic that is expected to result from the widening of the Panama Canal. Economic conditions, including uncertainty in the debt markets, have forced the Port to put plans on hold. The current illiquidity in the commercial paper market has had a great impact on interest rates paid on current commercial paper obligations, which will affect the Port's bottom line and reduce the amount of funds available for future capital investment. This situation is further complicated by problems in the long term debt market, which make it nearly impossible to consider converting any of the commercial paper to bonded debt. In sum, the troubled financial markets, particularly the recent lack of access to commercial paper, have significantly impacted the Port’s ability to make infrastructure improvements necessary to capitalize on future economic trends.

Recommendations for Economic Stimulus
In light of these and other projects which have been indefinitely postponed due to the seizure of the capital markets, we urge Congress to address these issues in the second economic stimulus package currently under consideration. The Florida Association of Counties (FAC) recommends the following changes:

• Extending Treasury and Federal Reserve authority under TARP and the CPFF to ensure that capital markets are open to state and local governments.
• Requiring rating agencies to use comparable ratings for all securities. Doing so would better reflect the financial soundness of municipal bonds and lead to lower borrowing costs.
• Raising the bank qualified debt limit from $10 million to $30 million, which will allow small issuers to place their issuances directly with banks.

Your prompt attention to this matter is greatly appreciated. Please let me know if you have any questions or need additional information. John Ricco, Director of Enterprise Services, or John Wayne Smith, Director of Legislative Affairs, are the two best contacts and can be reached at 850-922-4300. Likewise, if there are other issues where you think FAC can be of assistance, please contact us at your earliest convenience.

Sincerely,

Christopher L. Holley
Executive Director