Our nation is at a crossroads, and Washington must act now. With that in mind, I sent the following letter today to Congress on behalf of the nation’s mayors urging Congress to move quickly to address the current national financial crisis:
Dear House and Senate Leaders and Members of Congress:
I am writing to you in my capacity as President of the United States Conference of Mayors. The current dysfunctions in the financial markets are having major economic impacts across the country, in particular to large urban centers. I list just five of those impacts below:
Loss of jobs/Loss of economic development and growth
From January through August 2008, the US economy has lost over 605,000 jobs (an additional 105,000 job losses are expected in September) and total unemployment now totals 2.2 million. The consolidation in the banking industry that is occurring due to our current financial distress will only exacerbate the situation. For cities like New York that rely on personal income taxes for a major source of their operational cash, the impact will be devastating, adding to the shortfalls in property tax collections resulting from the national housing crisis.
Cities drive the national economy. Metro economies now account for 86% of national employment, 90% of labor income and 90% of the Gross Domestic Product. Metropolitan areas are the economic engines of America because we invest in our neighborhoods, we invest in our people.
Let there be no doubt, our current national economic crisis is having, and will continue to have, a severe impact on our ability to continue investing in our nation’s growth. Rising unemployment and reductions in personal income are putting a significant strain on our budgets and our ability to deliver services and promote economic development.
Let there also be no doubt, it is at a time like this that the American people require more from their Mayors. Increases in crime are already evident in many areas. Job training and job placement become more important than ever. Budgets cuts in schools result in the elimination of after school programs designed to keep our young people off the streets, away from trouble.
We are delighted by the recent continuous reference to Main Street and its new-found popularity. We are delighted that Washington seems to be re-discovering what Mayors have long known, that Main Street is America’s cities.
Strong and prosperous cities are a strong and prosperous America.
Loss of confidence
A loss of confidence in our banking system is also currently playing out in what should be simple determinations of what constitutes safe havens for operational funds (let alone long-term investments). For example, the City of Miami holds approximately $10 Million of liquid cash and investments to cover day-to-day expenses.
When Wachovia’s financial distress was coming to light, we seriously considered pulling out our funds. Even though we have State legislative protection against failing public depositories, had Wachovia collapsed it may have been months before access to our cash would have occurred and in that event, short-term borrowing for liquidity would have been either very expensive or downright impossible.
Access to Credit Denied/Delayed/Costly
Prior to the most recent bank failures and consolidations, the municipal bond market was averaging $5-7 Billion per week in new bond issuances. Over the past two weeks, the average of entries into the marketplace has diminished to well under $1 Billion per week and the visible supply of new issues has backed up to over $15 Billion. These numbers represent a delay of necessary capital projects that help spur job creation.
For those municipalities that have been able to access the market over the past two weeks, their entry has come at a price of between 75-85 basis points in stated interest costs and an additional interest penalty of 30-35 basis points in order to get their transactions done. The overall effect of the current economic crisis on municipal debt has been an increase of approximately 1.0% -1.20% in interest costs over the period prior to two weeks ago. When cities issue debt in the tens and hundreds of millions of dollars, these changes in borrowing costs represent significant added costs to taxpayers. Additionally, some municipalities simply cannot afford to issue debt at these interest rate levels.
Lost Values in Pension Funds and 401K retirement accounts
Citizens around the country rely on their retirement savings accounts and pension funds to provide for themselves in their golden years. These funds have lost millions in value as a result of the losses being suffered in the stock market. In fact, the Dow Jones’ loss of 777 points in a single day reduced equity values by more than $1 trillion. For municipalities around the country, these losses directly translate to increased pension contributions from already strained city budgets.
Foreclosures and Housing Values
Property taxation represents local government’s largest revenue source. With 1.7 million foreclosure proceedings in 2007 and an estimated 2.3 million additional foreclosure proceedings expected in 2008, cities have had to adjust, and will continue to adjust, their operating budgets downward to offset lost property tax revenues. Cities realize that housing markets fluctuate and they plan accordingly utilizing budgetary reserves. However, the magnitude of foreclosures and their expected long-term impact on national housing stock will greatly upset the ability of cities to address the needs of the American people.
On behalf of the American people, the US Conference of Mayors urges and expects Congress to move quickly to adopt a thorough solution to address the national financial crisis for the long term, a solution that benefits both Main Street America and Wall Street.
Manny A. Diaz
PresidentU.S. Conference of Mayors