Sample Letter to Members of Congress on H.R. 5177

Permitting Federal Home Loan Banks to Provide Letters of Credit
for Public Infrastructure Development

Dear :

On behalf of my community bank and the Pennsylvania Association of Community Bankers, I am writing to request that you cosponsor legislation introduced by Congressman Phil English and Congressman Paul Kanjorski, H.R. 5177, that would enhance the ability of the Federal Home Loan Banks to help member institutions meet the credit needs of the communities we serve. The legislation would amend Section 149(b) of the Internal Revenue Code (IRC) of 1986 to clarify that the FHLBanks may provide letters of credit and other credit facilities to support non-housing municipal bond issues without adverse tax consequences for bond investors.

Municipalities issue bonds to finance community and economic development projects. Allowing member banks to offer a FHLBank AAA letter of credit would result in a lowering of funding costs for the entity issuing the bonds. As written, Section 149(b) specifically mentions government sponsored enterprises including Fannie Mae, Freddie Mac, and Ginnie Mae as entities whose bonds do not lose their tax-exempt status by virtue of their having a “federal guarantee.” FHLBanks are not included in this list of exempted entities because at the time FHLBanks did not offer letters of credit.

Clarifying, through legislation, that FHLBank credit enhancements can also be used to support non-housing tax-exempt municipal bonds would remove any ambiguity in the statute. Including the FHLBanks among the entities already exempted under Section 149(b) of the IRC will enable member financial institutions to help reduce the cost to the taxpayers of municipal bond issues for such projects as water treatment facilities, fire stations, long-term care for the elderly, medical clinics, school buses and infrastructure improvements.

This amendment will enhance our community bank’s ability to serve our communities.

Should you have any questions about this legislation, please do not hesitate to contact the Pennsylvania Association of Community Bankers. Thank you for your consideration of this important matter.