On Thursday, April 9th, the Federal Reserve announced that it would open the Municipal Liquidity Facility to support lending to cities with a population that exceeds 1 million, counties with population that exceeds 2 million, and all 50 states and the District of Columbia. Under the Facility, a federal reserve bank will commit to lend to a fund.
The Federal Reserve will be lending to Eligible Issuers on a recourse basis, which will allow Eligible Issuers to be sued if they fail to payback their loan. There is no forgiveness of such loans.
An Eligible Issuer is a city with a population that exceeds 1 million (10 cities), counties with population that exceed 2 million (15 counties), and all 50 states and the District of Columbia.
The Department of the Treasury under the CARES Act will make an initial equity investment of $35 billion. The fund will have the ability to purchase up to $500 billion of Eligible Notes.
Eligible Notes are tax anticipation notes, tax and revenue anticipation notes, and bond anticipation notes, and another similar short-term note issued by Eligible Issuers. The note may not have a maturity date later than 24 months from the date of issuance. In other words, a municipality has to pay back the loan within 2 years.
The fund may purchase Eligible Notes issued on behalf of the State, City, or County where the aggregate amount does not exceed 20% of the general revenue from own sources and utilities revenue of the applicable State, City or, County government for 2017. So, for example, if the State of Illinois had $1 billion in general revenue in 2017, the State could borrow up to 20% or $200 million of that amount by selling Eligible Notes to the fund.
The Eligible Issuer must pay an origination fee equal to .10 percent on the principle amount of the notes purchased by the fund.
Pricing will be based on an Eligible Issuer’s rating at the time of purchase with details to be provided later. The note can be paid off early at their face value.
The eligible use of proceeds includes:
- cash flow impacts related to moving back the tax filing deadline;
- reductions in taxes or other revenues or increases in expenses related to or resulting from COVID-19; or
- A State, City, or County can use the proceeds of the short-term notes to pay principle and interest on other obligations.
Finally, smaller political subdivisions are not left out. The state can purchase the notes of a smaller political subdivision. There is no mandate for the state to purchase notes from smaller issuers, and the state is on the hook for the issuances they purchase. A State may request the fund purchase more Notes from the State in order to assist smaller political subdivisions.
There is no start date when the facility will open, but it will cease purchases on September 30, 2020.
In agency news, today, the Federal Transit Administration (FTA) published a new Frequently Asked Question (FAQ) regarding recommended transit workforce protections, including personal protective equipment (PPE) and social distancing practices.
In terms of new rounds of funding, talks between the Trump administration, Senate and House leaders are reported to continue over the weekend. The Senate’s next pro forma session is scheduled for Monday, April 13. NLC continues to push for direct relief for local governments regardless of population threshold, which is HR 6467.
Please continue support of H.R.6467 – the Coronavirus Community Relief Act. The Senate is working on a companion bill.
Last, late this afternoon we heard that there is a push for CDBG funding in the Schumer/Pelosi proposal to go primarily to counties. NLC has not been differentiating between municipal governments and county governments in our efforts, because we recognize both are facing the same budget circumstances.
We’re concerned, however, that a partisan split could be developing among members of Congress that puts urban and rural concerns in opposition to one another, which could reopen old and already settled city/county debates. This is the last thing we need or want.
When it comes to COVID-19 we need unity – to fund public health, which is largely a county government function; and economic development and recovery, which is primarily a city government function.
We have reached out to both Senator Schumer and Pelosi’s office expressing this sentiment. We will keep you informed if we hear that this is gaining traction.