On Monday, April 27, the Federal Reserve (Fed) announced an expansion to the Municipal Liquidity Facility (MLF), a $500 billion emergency lending program for state and local governments enduring the economic fallout from the coronavirus pandemic. The new expansion also lowered by 50 percent the population threshold criteria needed to be eligible to sell short-term debt to the program. Cities would now need a population of at least 250,000 and counties a population of at least 500,000 instead of 2 million and 1 million, respectively. According to data from the Census Bureau, these new rules allow for 87 new cities and 140 counties to be qualified for the program, including big cities that were not eligible before such as Atlanta, Miami, Baltimore, Boston, and New Orleans.1
The termination date for the program that was previously aimed for September 30 has been pushed to the end of the year. Although the Fed did not give information on the price of the securities purchased under the MLF, they said it would be based on issuer’s rating at purchase time and that more details would be provided later. The MLF expansion is already an improvement from their first announcement in April where only 10 cities and 15 counties would be able to participate and sell their debt directly. The Fed said that they will “monitor conditions in primary and secondary markets for municipal securities and will evaluate whether additional measures are needed to support the flow of credit and liquidity to state and local governments.”2
This is good news for cash-strapped local and state governments to be able to keep money flowing.3 Additionally, it was announced that there is consideration to expand the program to include revenue bonds. We will continue to keep a close eye on this as more details arise.
1https://www.bloomberg.com/news/articles/2020-04-27/fed-lowers-population-thresholds-for-municipal-debt-program
2https://www.washingtonpost.com/business/2020/04/27/federal-reserve-expands-emergency-coronavirus-aid-program-more-cities-counties/
3https://www.cnbc.com/2020/04/27/the-fed-says-it-is-expanding-its-municipal-bond-buying-program.html