Municipal Bond Market Support Act of 2009

Mr. President, I rise today on behalf of myself and Senator Cornyn to introduce legislation that will address one of the most serious problems facing our Nation--the long-term health of Social Security and Medicare.

Today we propose a bipartisan, independent and permanent commission to return these essential programs to solid financial footing for generations to come.

Our legislation mandates the periodic, comprehensive review of Social Security and Medicare to ensure their present and future solvency.

By a year from the date of enactment, it requires the Commission to devise and recommend to Congress and the President a benefit and revenue structure that allows Social Security and Medicare to become, once again, stable and effective over the long-term.

The problem we face is astronomical. President-elect Barack Obama is well aware of this, and said so on the front page of today's Washington Post.

He recognizes the growing threat this problem represents to the long- term health of our economy, and to the American people. So I look forward to working with him to find ways to ensure the long-term health of these great American institutions.

He recognizes, as Senator Cornyn and I do, that inaction is dangerous.

The Congressional Budget Office announced last week that the fiscal year 2009 deficit is projected to reach $1.2 trillion, a new record.

The three largest entitlement programs, Social Security, Medicare, and

Medicaid, are expected to grow by at least 8 percent this year.

Meanwhile, the Social Security funding shortfall has ballooned to roughly $4.3 trillion--the amount necessary to continue full benefits being paid past 2083.

Medicare is in far worse shape, needing $12.4 trillion over the next 75 years to close the gap and remain in balance.

The numbers tell the story: growing cash flow deficits will exhaust the Medicare trust fund in 2019, and Social Security reserves will be overcome in 2041, according to the most recent Trustees report.

Our legislation takes a new approach and is bipartisan to the core.

Fifteen experts, some of whom are Members of Congress from the committees of jurisdiction, are appointed. They take a full year to conduct town hall meetings nationwide, assess these trillion dollar programs from top to bottom, and rationalize their cost structure through intensive evaluation.

We advocate an open and transparent process, where all American voices can be heard.

Too often during my time in the Senate I have seen approaches that rely strictly on elected officials meeting privately and out of the public view fail. A workable solution to these problems must be transparent.

In the 110th Congress alone, there were no less than six proposals to reform Social Security. The Commission we propose would not be offering one-time solutions that get tossed aside and collect dust.

Far from it: the Commission's detailed analysis, nonpartisan recommendations and findings are provided in writing and take the form of legislation that Congress formally considers.

The Senate and House, in turn, through expedited legislative procedures, will hopefully be poised to amend if need be and then enact the changes into law. To be clear, this legislation will not prevent our colleagues from the opportunity to improve the Commission's proposals.

We do not hold out, today, certain ideas that we believe the members of the commission ought to consider.

We rely on their independent expertise and motivation to derive what is best for the Nation. Then we let the chips fall where they may from there.

President-elect Obama's choice to lead the Office of Management and Budget, Peter Orszag, agrees that Social Security is one of America's most successful Government programs.

But failure to act on real reform, in his words, ``merely exacerbates the painful choices that will ultimately be necessary.''

While such reforms will be difficult, he ultimately argues that, ``Social Security can be mended in a safe, realistic way, while protecting the most vulnerable beneficiaries.''

I believe Mr. Orszag is correct. It will be only a matter of time before we must implement real Social Security reform.

That's because 51 million people, or 1 out of every 6 Americans, depend on it.

And by 2034, an astounding 74 million Americans will receive this guaranteed benefit. At that time there will be only 2.1 workers for every one beneficiary.

For more than 20 percent of retirees, Social Security is it: their only source of income.

For half of those 51 million, Social Security keeps them out of poverty. And for almost two-thirds, Social Security makes up more than half of their total income.

Six and one half million widows and widowers rely on Social Security, as do 7.5 million disabled workers and their 1.6 million children.

The long-term challenges are significant. It's not a crisis; we have time to implement gradual reform over time, but we need to get started.

However, the current economic crisis leads me to believe that nothing is for certain.

While the projected shortfall for Social Security amounts to about $4.3 trillion, the fact of the matter is that 100 percent of benefits can be paid until 2041 by some estimates, Social Security Administration, or 2049 by others, CBO. Beyond that time horizon, 78 percent of benefits can be paid.

So the bottom line is that there is the time, the know-how, and the resources to, be able to maintain the current system, with phased adjustments occurring over many years to the Social Security Trust Fund.

The key, of course, is coming to a rational consensus--Democrats and Republicans united--in the effort to to make Social Security solvent from this day forward.

Most budget experts agree that the Social Security problem pales in comparison to the enormous shortfall facing Medicare Trust Fund, Part A--over the next 75 years a total of $12.4 trillion. The various technical estimates are that Medicare is projected to become insolvent far sooner than Social Security.

In fact, the most recent Medicare Trustees report confirms that the trust fund will be exhausted in 2019.

Closing the trust fund gap demands action.

Pressure on Medicare will only grow as the Baby Boom generation ages yet the number of beneficiaries skyrockets upwards--from 44 million now, a number which will double by 2030--as the Baby Boom generation ages.

Compounding the problem, the Congressional Budget Office projects that Medicare spending will rise to 10.8 percent of the gross domestic product by 2082, up from 3.2 percent of GDP today.

Because the program is financed through payroll taxes and general tax revenue, the pressure is building now on working Americans given the huge demographic changes we expect as Baby Boomers retire.

The plain truth is that surging health care costs exceed economy growth. This health care spending must be controlled or Medicare faces a dire situation.

In closing, I should note that Congress is debating a historic stimulus initiative, designed to pull our economy out of this current downturn. While these investments are likely necessary, I strongly believe that they should be coupled with the framework to return to long-term fiscal sanity.

I know the incoming administration recognizes the gravity of this situation.

I look forward to working with the new President, and my colleagues, to advance positive solutions to address the looming entitlement crisis.

Mr. President, I rise today to introduce the Municipal Bond Market Support Act of 2009. This bill is similar to one that Senator Crapo and I introduced in the 110th Congress, and I am grateful for Senator Crapo's continued leadership on this issue, as well as the cosponsorship of Senators Kerry, Snowe, and Schumer.

One of the most unfair--but least discussed--impacts of the credit crisis is its severe disruption of the municipal bond market. By reducing state and local governments' access to financing, increasing interest costs, and shrinking the universe of available investors, this disruption is threatening critical infrastructure investments that generate significant economic activity, just when the need for infrastructure enhancements could not be more apparent.

Municipal bonds have long played an essential role in financing the construction, expansion, and repair of schools; highways, roads, and bridges; affordable housing; hospitals; public transit; water and sewage systems; and community-owned utilities. But currently, the municipal bond market is significantly impaired. This situation has been caused by reasons completely extrinsic to events in the municipal bond market; indeed, municipal bonds remain among the safest securities in the world, with extremely low default rates.

Because of this market impairment, states, municipalities and authorities have been and are continuing to face unreasonably high debt issuance costs. Due to these high costs, many other state and local governments are finding themselves suddenly unable to issue debt. For instance, in the fourth quarter of 2008, bond issuance fell 33 percent compared to the fourth quarter of 2007, representing a $35 billion drop.

The pain is being felt by States and municipalities across the country, which have had to curtail new bond issuances, delay, or withhold borrowing altogether from the capital markets. For instance, in Connecticut, the state sought to sell $500 million in General Obligation bonds, but was only able to sell $99 million. As an indication as to how interest rates have increased significantly, secondary market trading data indicates that, for instance, through the beginning of 2009 a Clayton, New Mexico, revenue bond series saw a 230 basis point increase. This increase is indicative of the increase in costs that the city would incur if they had to issue new bonds today, a rate of 7.60 percent, whereas a year ago the same issue would likely have been issued at 5.29 percent.

Infrequent issuers are experiencing an even more difficult time accessing the markets. A study by Municipal Market Advisors found that for issuers that borrow once a year or less, borrowing costs increased by at least 200 basis points during the last half of last year; in many cases, the increase exceeded 250 basis points. For a state or locality issuing $100 million in 30-year bonds, a 200 basis point increase translates to $60 million in additional interest payments over the 30 years. Ultimately, these higher costs will be the responsibility of taxpayers, through higher taxes and/or reductions in other investments or services.

As Congress looks to legislation that will spur a national economic recovery, we should enhance demand for municipal bonds by liberalizing restrictions on banks' ability to acquire municipal debt.

Since the enactment of the Federal income tax in 1913, Congress has supported the municipal bond market by exempting municipal bond interest from taxation. Tax exemption is an effective means of conferring Federal assistance on state and local capital investments; it also recognizes that decisions about which projects to fund are most appropriately made at the State or local level. Historically, banks were significant purchasers of tax-exempt debt. But the Tax Reform Act of 1986 severely curtailed banks' participation by automatically disallowing deductions for interest expense whenever municipal bonds are purchased. The Act left an exception only for bonds purchased from smaller municipalities, those selling no more than $10 million of bonds each year. In contrast, non-bank corporations are permitted to hold up to 2 percent of their total assets in tax-exempt bonds, regardless of the size of the issuer, without jeopardizing interest expense deductibility.

Given the severe challenges affecting the municipal bond markets, now is the time to modify these limitations and thus help channel additional capital to critical infrastructure projects.

First, the Act will extend the 2 percent de minimis rule to banks, placing them on the same footing as other corporate investors.

Second, the Act will raise the $10 million small issuer exception to $30 million. Because the $10 million level was not indexed to inflation, its purchasing power has eroded significantly since 1986, leaving many smaller governments either to defer projects to comply with this low limit or find non-bank purchasers.

Finally, the Act will ensure that the small issuer is made applicable at the ultimate borrower level, so that bonds benefiting non-profit universities and hospitals will not exceed the limitation merely because they issue bonds through statewide authorities.

Taken together, these steps promise to significantly boost municipal bond demand, adding liquidity to the market. For instance, Municipal Market Advisors projects that extending the 2 percent de minimis rule to banks would increase their municipal debt purchasing power by $56 billion. Additional demand will enable municipalities across the nation, and particularly those in small and rural communities, to finance the critical infrastructure projects that play an important role in growing our national economy.

Ten national organizations representing state and local governments are supporting the Act. I urge my colleagues to do the same.

Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. President, I rise today to introduce the Municipal Bond Market Support Act of 2009. This bill is similar to one that Senator Crapo and I introduced in the 110th Congress, and I am grateful for Senator Crapo's continued leadership on this issue, as well as the cosponsorship of Senators Kerry, Snowe, and Schumer.

One of the most unfair--but least discussed--impacts of the credit crisis is its severe disruption of the municipal bond market. By reducing state and local governments' access to financing, increasing interest costs, and shrinking the universe of available investors, this disruption is threatening critical infrastructure investments that generate significant economic activity, just when the need for infrastructure enhancements could not be more apparent.

Municipal bonds have long played an essential role in financing the construction, expansion, and repair of schools; highways, roads, and bridges; affordable housing; hospitals; public transit; water and sewage systems; and community-owned utilities. But currently, the municipal bond market is significantly impaired. This situation has been caused by reasons completely extrinsic to events in the municipal bond market; indeed, municipal bonds remain among the safest securities in the world, with extremely low default rates.

Because of this market impairment, states, municipalities and authorities have been and are continuing to face unreasonably high debt issuance costs. Due to these high costs, many other state and local governments are finding themselves suddenly unable to issue debt. For instance, in the fourth quarter of 2008, bond issuance fell 33 percent compared to the fourth quarter of 2007, representing a $35 billion drop.

The pain is being felt by States and municipalities across the country, which have had to curtail new bond issuances, delay, or withhold borrowing altogether from the capital markets. For instance, in Connecticut, the state sought to sell $500 million in General Obligation bonds, but was only able to sell $99 million. As an indication as to how interest rates have increased significantly, secondary market trading data indicates that, for instance, through the beginning of 2009 a Clayton, New Mexico, revenue bond series saw a 230 basis point increase. This increase is indicative of the increase in costs that the city would incur if they had to issue new bonds today, a rate of 7.60 percent, whereas a year ago the same issue would likely have been issued at 5.29 percent.

Infrequent issuers are experiencing an even more difficult time accessing the markets. A study by Municipal Market Advisors found that for issuers that borrow once a year or less, borrowing costs increased by at least 200 basis points during the last half of last year; in many cases, the increase exceeded 250 basis points. For a state or locality issuing $100 million in 30-year bonds, a 200 basis point increase translates to $60 million in additional interest payments over the 30 years. Ultimately, these higher costs will be the responsibility of taxpayers, through higher taxes and/or reductions in other investments or services.

As Congress looks to legislation that will spur a national economic recovery, we should enhance demand for municipal bonds by liberalizing restrictions on banks' ability to acquire municipal debt.

Since the enactment of the Federal income tax in 1913, Congress has supported the municipal bond market by exempting municipal bond interest from taxation. Tax exemption is an effective means of conferring Federal assistance on state and local capital investments; it also recognizes that decisions about which projects to fund are most appropriately made at the State or local level. Historically, banks were significant purchasers of tax-exempt debt. But the Tax Reform Act of 1986 severely curtailed banks' participation by automatically disallowing deductions for interest expense whenever municipal bonds are purchased. The Act left an exception only for bonds purchased from smaller municipalities, those selling no more than $10 million of bonds each year. In contrast, non-bank corporations are permitted to hold up to 2 percent of their total assets in tax-exempt bonds, regardless of the size of the issuer, without jeopardizing interest expense deductibility.

Given the severe challenges affecting the municipal bond markets, now is the time to modify these limitations and thus help channel additional capital to critical infrastructure projects.

First, the Act will extend the 2 percent de minimis rule to banks, placing them on the same footing as other corporate investors.

Second, the Act will raise the $10 million small issuer exception to $30 million. Because the $10 million level was not indexed to inflation, its purchasing power has eroded significantly since 1986, leaving many smaller governments either to defer projects to comply with this low limit or find non-bank purchasers.

Finally, the Act will ensure that the small issuer is made applicable at the ultimate borrower level, so that bonds benefiting non-profit universities and hospitals will not exceed the limitation merely because they issue bonds through statewide authorities.

Taken together, these steps promise to significantly boost municipal bond demand, adding liquidity to the market. For instance, Municipal Market Advisors projects that extending the 2 percent de minimis rule to banks would increase their municipal debt purchasing power by $56 billion. Additional demand will enable municipalities across the nation, and particularly those in small and rural communities, to finance the critical infrastructure projects that play an important role in growing our national economy.

Ten national organizations representing state and local governments are supporting the Act. I urge my colleagues to do the same.

Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. President, I rise today to speak on the reintroduction of the Serve America Act. I, along with my good friend, the senior Senator from Massachusetts first introduced this legislation in the waning days of the 110th Congress, and I am proud to lend my support to the bill during this session. We are currently joined by 20 cosponsors, both Republican and Democrat.

I have long been a supporter and advocate for volunteer service. I believe that, when private citizens offer their time and talents to serve in their communities, they benefit along with those they have helped. Furthermore, I believe that, if we can encourage people to volunteer their services in their towns and neighborhoods, we can better address our Nation's most pressing problems.

The Serve America Act does many things. Most apparently, it creates new national service corps that will enlist the help of our people to address specific areas of national need, including education, energy efficiency, access to health care, economic opportunity for the disadvantaged, and disaster relief. It also encourages individuals and non-profit groups to come up with new and innovative ways to encourage volunteerism and to use the help of volunteers effectively. In addition, it enlists the help of the private sector in addressing important needs in our nation and community.

As in the 110th Congress, Senator Kennedy and I have agreed that, when this bill goes through the HELP Committee, we will work together to ensure that the spending authorized in the bill will be offset. In this way, the bill will be budget-neutral, providing much needed assistance to the non-profit sector without adding to the Federal deficit. Indeed, the American people have made it clear time and again that they desire fiscal responsibility in Congress. Due to this agreement, the Serve America Act meets those demands.

Senator Kennedy and I are also reintroducing the Incentive to Serve Tax Act as a companion piece to the Serve America Act. This bill would provide tax incentives to encourage companies to allow their employees to volunteer their services on company time. Specifically, the bill would provide companies a tax credit equal to 25 percent of the compensation paid to an employee who performs at least 160 hours of a specified charitable service.

As you might know, a handful of large corporations presently have programs to provide managerial and educational workers to schools and community organizations. This tax incentive would encourage these companies to do even more as well as encourage other companies that, up to now, may not have been able to afford to provide such service. This will allow businesses to utilize their employees with various skills and knowledge to target specific areas that need to be addressed in the communities where those workers live and work. In the end, everyone will benefit.

Mr. President, these two bills represent a bipartisan effort to harness the talents, generosity, and ingenuity of the American people. I believe that this is an effort that Members from both parties can and should support. I urge all my colleagues--Republicans and Democrats alike--to support this important legislation.

I yield the floor.