Federal Legislation Affecting Cities

CONGRESS

Mandatory Collective Bargaining Bill on Hold
Acrimonious and partisan disagreements over Senate procedures, a White House veto threat, and the unexpected absence of Sen. Edward M. Kennedy (D-MA), the bill’s primary sponsor, brought debate and action on the mandatory collective bargaining bill (S. 2123/H.R. 980) to a halt earlier this week.

Before debate on the bill was suspended, Majority Leader Harry Reid (D-NV) asked Sen. Kennedy and Sen. Mike Enzi (R-WY), the bill’s chief opponent, to negotiate terms for further debate on the legislation. Staff-level negotiations continue, but it is unknown at this time when the Senate will resume debate on the bill.

Climate Change Proposal Includes Support for Municipal Programs
On May 20, Sen. Joe Lieberman (I-CT) and Sen. John Warner (D-VA) introduced S. 3036, the Lieberman-Warner Climate Security Act, a comprehensive climate change proposal, which includes funding, $136 billion for the Energy Efficiency and Conservation Block Grant and $171 billion to support mass transit. Additionally, the bill calls for tax relief for the energy needs of low-income consumers.

The bill also establishes a cap-and-trade system designed to gradually reduce the amount of greenhouse gases from approximately 2,100 facilities nationwide, including coal burning power plants and factories, natural gas processors, and petroleum refiners, by set amounts by set time frames.

The Senate is expected to begin a two-week floor debate on the legislation beginning June 2.

House Subcommittee Approves Amtrak Reauthorization
On May 22, the House Transportation and Infrastructure Committee approved by voice vote the Passenger Rail Investment and Improvement Act of 2008 (H.R. 6003). The bill authorizes $14.4 billion for Amtrak for capital and operating grants, state intercity passenger grants, and high-speed rail over the five years (FY 2009-2013). Of the $14.4 billion, $4.2 billion is set aside for capital grants, $3 billion for operating grants, $2.5 billion to states to finance new or improved intercity passenger service, and $1.75 billion for grants to states and to Amtrak to fund up to 11 new high-speed rail corridors. The full House is expected to vote on the measure before the August recess. The Senate passed an Amtrak reauthorization measure last year that included $11.4 billion in funding but did not include the high-speed rail provision. Amtrak reauthorization expired in 2002.

Senate Reauthorizes National Flood Insurance Program
Two weeks ago, the Senate passed legislation (S. 2284) to reauthorize the nation’s flood insurance program through 2013. The House passed similar legislation last year for the program, which is set to expire on September 30, 2008 (H.R. 3121, the Flood Insurance and Modernization Act of 2007).

Both versions of the bill phase out subsidized rates on commercial properties, vacation homes, and second homes built before 1974 and increase the amount by which the Federal Emergency Management Agency (FEMA) can raise policy rates in a given year from 10 percent to 15 percent. Both versions also require FEMA to review the nation’s flood maps and provide more funding for updates.
There are two key differences between the bills that will have to be reconciled in a House-Senate conference committee. First, the Senate version forgives the program’s debt, which rose to $17.5 billion in the aftermath of Hurricanes Katrina, Rita, and Wilma in 2005. The House version requires a revenue offset in exchange for the debt being forgiven. Second, the House bill includes language to expand the program to allow for the purchase of coverage against wind damage. The Senate version does not include wind coverage, and the White House has threatened to veto any bill with wind damage.

Senate Committee Advances Housing Stabilization Measure
On May 20, the Senate Banking Housing and Urban Affairs Committee approved a housing stabilization measure by a vote of 19 to 2. The bill, which is similar to recently-passed House legislation, calls for improved federal regulation and oversight of Fannie Mae and Freddie Mac, the two government-sponsored enterprises that together provide the majority of credit for the U.S. home mortgage market. The bill also calls for the Federal Housing Administration (FHA) to insure up to $300 billion in refinanced subprime loans to help struggling homeowners avoid foreclosure caused by rising interest rates.

The overwhelming bipartisan support for the bill came as a result of weeks of negotiations between the sponsor, Senate Banking Committee Chairman Chris Dodd (D-CT) and Ranking Member Richard Shelby (R-AL), principally over how to shield federal tax revenues from the risk of defaults on loans insured under the new FHA plan. Under the bill, Fannie Mae and Freddie Mac would create and fund an affordable housing trust fund. All money collected in the first year of the trust fund would go to FHA to cover costs and losses of the new FHA insurance plan. In the second year, 50 percent of the trust fund would go to FHA, and 25 percent in the third year. Trust fund revenues not directed to FHA would be used for the construction of new affordable housing.

The Senate measure, however, may become an obstacle to negotiations with House leaders, who want to devote the first year of affordable housing trust fund money to the construction of housing along the Gulf Coast in areas devastated by Hurricane Katrina, and who believe that the stringent approval process for FHA insurance provides adequate risk protection for federal tax revenues. The Senate will likely consider the bill in the near future to ensure the more difficult negotiations with the House can begin quickly. Both House and Senate leaders have set unofficial goals of sending a housing stabilization and foreclosure prevention measure to the President before the July 4th recess.

COURTS

Supreme Court Upholds Tax Breaks for Municipal Bonds
On May 19, the U.S. Supreme Court upheld the preferential tax break that 42 states give their residents who invest in bonds issued by those states and their municipalities. The ruling came as a relief to the $2.6 trillion municipal bond market, a primary vehicle that state and local governments rely upon to raise funds to finance public projects.

Voting 7-2, the justices rejected the argument that a state engages in unconstitutional discrimination against interstate commerce by exempting the interest on its own bonds from residents’ taxable income while taxing the interest earned on the bonds from other states. The Kentucky Court of Appeals had accepted this argument in a case filed by Kentucky residents who paid state income tax on interest from out of state municipal bonds.

The National League of Cities, the National Governors Association, Government Finance Officers Association, National Conference of State Legislatures, National Association of Counties, Council of State Governments, U.S. Conference of Mayors, International Municipal Lawyers Association, and International City/County Management Association filed a brief urging the Supreme Court to overturn the Kentucky court and uphold the preferential tax treatment.