Banking and Finance Law Daily Senators request more financial assistance for state and local governments
Wednesday, July 15, 2020

Senators request more financial assistance for state and local governments

By J. Preston Carter, J.D., LL.M.

The lawmakers say money set aside in the Municipal Liquidity Facility for loans to state and local governments has been underutilized, and they urge the Fed and Treasury to expand the program and change its terms to make it easier to use.

Senators Elizabeth Warren (D-Mass), Chris Van Hollen (D-Md) and Catherine Cortez Masto (D-Nev) announced that they sent a letter to Federal Reserve Chairman Jerome Powell and Treasury Secretary Steve Mnuchin asking for greater financial assistance to state and local governments, stating that these municipalities have been uniquely affected by the COVID-19 pandemic and the associated economic downturn. The letter states that recent state budget shortfalls have forced governments to furlough workers, cut worker pay, or close facilities, and local budgets are also strained to meet the significant health needs of their populations.

The senators write that the $35 billion that the Treasury Department and the Fed have set aside to establish the Municipal Liquidity Facility (MLF) to provide loans for state and local governments, has been vastly underutilized, and suggested that the current terms of the facility are insufficient. They called on Treasury and the Fed to expand the MLF and make its terms better for state and local borrowers, including by reducing the minimum population thresholds and extending the duration and interest rates of the loans, similar to the terms set for big business. The senators also called on the agencies to consider allowing smaller municipalities to participate in the Main Street Lending Program.

"In recent weeks, Treasury and the Fed have successfully taken extraordinary measures to shore up financial markets, providing significant benefits to large corporations and shareholders," the senators wrote. "The millions of Americans who live paycheck-to-paycheck and rely on the services and employment provided by state and local governments need help too, and we cannot allow these communities to be left behind during our recovery."

Americans for Financial Reform also sent a letter to Powell urging him to change the rules to the MLP to provide more support for state and local governments. The letter states that the terms on which the Fed provides credit to states and localities through its MLF are inadequate and act as a major barrier for state and local governments that might need to use the facility. According to the letter, the length of the lending period for MLF funds is too short, the price of the credit is too high, and the scope of entities for which credit support is available is too narrow.

Companies: Americans for Financial Reform

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