On Sept. 15, 2008, Lehman Brothers, Wall Street's fourth largest investment firm, filed for Chapter 11 bankruptcy protection -the largest bankruptcy filing in American history.  With nearly $700 billion in reported debt, the firm's collapse helped usher in the current international financial crisis. 

The U.S. government responded by enacting the Troubled Assets Relief Program (TARP), which provided $700 billion to be used by the U.S. secretary of the treasury to provide financial assistance through the purchase of "troubled assets."

In exercising his discretion, the secretary is required to take into consideration a number of guiding factors.  One such factor is the need to ensure stability for United States public instrumentalities such as counties and cities that may have suffered significant increased costs or losses in the current market turmoil. Subsequently, nearly $590 billion in TARP funds has been provided for assistance to more than 500 financial institutions.

To date, no TARP funds have been provided to any so-called "public instrumentality."  But that could change.

On May 5, the House Committee on Financial Services held a hearing on the effect of the Lehman Brothers bankruptcy on state and local governments.  Testimony presented during the hearing revealed that local government entities in 20 states suffered an estimated loss of $1.67 billion when the company collapsed.  For example, public entities in Minnesota lost more than $56 million; Oregon lost $173 million; and Florida lost $465 million.   

Speaking on behalf of the Equitable Treatment of State and Local Governments Act of 2009 (H.R. 467), the bill's co-sponsor Rep. Jackie Speier (D-Calif.) stated that the use of TARP funds to reimburse Lehman losses "is perhaps the fastest way to bring relief to communities across America, allowing them to pay their employees, maintain current levels of service and immediately put shovels in the ground on already approved projects."    

In his testimony, San Mateo County, Calif.  Supervisor Richard S. Gordon emphasized that the Lehman securities purchased by the county's public agencies were "conservative investments in bonds and corporate notes, not speculative purchases of Lehman stock." Christopher Thornberg of Beacon Economics, said San Mateo's losses, which totaled $155 million, "mean the loss of 1,658 local jobs, approximately one half of one percent of the county's employment base.  It will suffer an overall loss of $216 million in output within the local economy including $100 million in income for local workers and major delays in the completion of projects necessary for the growth of the economy."

Rep. Anna G. Eshoo (D-Calif.) echoed Committee Chairman Barney Franks' (D-Mass.) characterization of public entities as the "unfair victims of this financial crisis."  As co-sponsor of H.R. 467, Eshoo noted that billions of dollars in TARP funds had been expended to help such financial institutions as Bank of America and Citigroup, but that no funds had been used to help out any public entities.  "It's been said that no banks are too big to fail.  It can also be said that counties, schools districts and cities are too small to be noticed," she lamented.

NACo supports H.R. 467 and has sent a letter to Treasury Secretary Timothy Geithner asking that he exercise his authority and immediately begin using TARP funds to reimburse these public entities for their losses.