Washington, D.C. – U.S. Senators Barbara Boxer and Dianne Feinstein (both D-CA) today wrote to Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke urging them to work with California State officials to address the lack of liquidity in the short-term municipal bond market.  

Senator Boxer said, “These are extraordinary times and California is being hit with unprecedented obstacles as we seek to do the business of our State.  The main purpose of the $700 billion bailout was to help ensure liquidity in the market, but the economy won’t work until the financial system responds to the capital requirements of both the private and public sectors.”

The text of the letter follows: 

November 24, 2008

The Honorable Henry M. Paulson, Jr.                          

Secretary                                                                                 

United States Department of the Treasury                                

1500 Pennsylvania Avenue, NW                                              

Washington, DC 20220                                                           

Dear Secretary Paulson:

            Last Friday, we received the attached letter from California State Treasurer Bill Lockyer and 19 other municipal bond issuers in California requesting urgent action to address problems in the short-term municipal bond market.  The attachments included in the letter outline the challenges faced by the State of California, California Department of Water Resources, City and County of San Francisco, County of Sacramento, Eastern Municipal Water District, and Los Angeles County Metropolitan Transportation Authority. 

            When the Administration requested $700 billion from Congress to stabilize the Nation’s banking and financial system, the primary intent of the program was to ease the flow of credit and provide liquidity to the markets.  As detailed in Treasurer Lockyer’s letter, a lack of liquidity in the short-term municipal bond market is placing great stress on California’s State and local governments.  This is emerging as a major problem which is not only straining vulnerable state and local budgets, but also limiting job growth as critical infrastructure projects are stalled due to financing problems. 

We are concerned that a failure to address the lack of liquidity in the short-term municipal bond market will severely threaten California’s economy, which is one of the largest in the world.  We request that you work constructively with Treasurer Lockyer and others to evaluate their proposals and develop solutions to increase liquidity in the short-term municipal bond market and support future economic expansion. 

Thank you for your immediate attention to this serious matter. 

                                                            Sincerely,

            Barbara Boxer                                        Dianne Feinstein

            United States Senator                          United States Senator

Identical letter sent to: The Honorable Ben S. Bernanke, Chairman, Federal Reserve System

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