The National Association of Counties last week sent a letter to the U.S. Treasury and Federal Reserve urging that the agencies take steps to expand access to the Municipal Liquidity Facility (MLF), which was established under the CARES Act to help address local government budget challenges and support the national economy.
In response to the detrimental fiscal impact of the COVID-19 pandemic, the Federal Reserve established the MLF to lend up to $500 billion to eligible cities, counties, and states experiencing steep revenue declines. After the program was established, federal, state, and local officials voiced concerns over the MLF’s restrictions on the support it could provide to states and localities struggling to deal with the adverse effects of COVID-19.
Although eligible state-level issuers may use the proceeds to support additional counties and cities, some states did not have any local governments that reached those population thresholds. As previously reported on Conduit Street, In response to these concerns, the Federal Reserve took steps to expand access to the MLF by lowering the population threshold and restructuring the program’s pricing structure.
Despite these changes to the MLF, counties continue to make significant financial investments in order to address immediate public health and safety needs. At the same time, counties are experiencing massive and unprecedented declines in revenue as a result of the coronavirus pandemic.
New NACo research estimates that the COVID-19 pandemic could have a $202 billion budgetary impact on counties of all sizes through FY 2021, including $172 billion in lost revenue and an additional $30 billion in COVID-19 response costs.
According to NACo:
Although the MLF provided some stability to the municipal bond market when it was established, it is not practical or accessible to entities that need it most – state and local governments. In the letter, NACo provided recommendations to the U.S. Treasury and Federal Reserve to ensure that state and local governments may take advantage of this important tool. These recommendations include:
- The Federal Reserve should extend the MLF’s underwriting deadline beyond December 31, 2020
- The Federal Reserve should lower the MLF population threshold so that more counties are eligible to sell short-term debt to the facility
- The Federal Reserve should restructure the facility’s pricing structure and lower the current rates