PHILADELPHIA (Reuters) - Three major American cities buffeted by the global financial crisis are requesting at least $50 billion in federal funds to help pay for infrastructure improvements, pensions and short-term borrowing.
Philadelphia, Phoenix and Atlanta are asking U.S. Treasury Secretary Henry Paulson to release funds from the $700 billion financial bailout authorized by Congress last month.
Philadelphia Mayor Michael Nutter will hand-deliver the request to Paulson on Friday, spokesman Luke Butler said. Five or six other cities, including Chicago, may also sign on, Butler added.
Congress set up the so-called Troubled Asset Relief Program to help banks and other institutions that were ensnared in the global credit crisis. But since President George W. Bush signed the bill into law, numerous other entities, including the U.S. auto industry, have lined up for help.
In recent weeks, some cities have announced layoffs and service cuts as slumping tax receipts create budget shortfalls. Philadelphia, for example, will eliminate hundreds of jobs and shut libraries and swimming pools to close a $108 million gap in its current $4 billion budget.
“We who run some of America’s larger cities are dealing with the economic damage wrought by the credit and housing crises,” the mayors’ letter to Paulson said.
“The economic contraction precipitated by these twin crises is forcing us, and mayors all over the country, to dramatically reduce programs and services for millions of residents.”
Participating cities are asking Paulson to set up a $50 billion fund to rebuild infrastructure.
The fund would consist of $25 billion in grant money for cities that are unwilling or unable to take on debt, and another $25 billion for loans to cities at an interest rate of 50 basis points above that of 30-year Treasury bonds.
In order to fully fund pension obligations, the cities are also seeking loans of an unspecified amount to cover pension liabilities that have become increasingly expensive because of a decline in investments with the slump in global markets.
Philadelphia’s pension fund lost more than $650 million in value in the first nine months of this year, and the city faces $300 million in increased pension costs between the fiscal years 2010 and 2013, the letter said.
Because of the credit crunch, cities are essentially unable to borrow in the private capital markets to meet their pension obligations, according to the letter.
The mayors are also asking the Treasury to provide unspecified one-year loans to cities to allow them to meet cash-flow needs resulting from an inability to borrow.
“Cities will disproportionately bear the brunt of the dislocations caused by the credit crisis and a contracting economy, unless the federal government steps in to assist us,” city officials said.