The Fed’s Municipal Liquidity Facility: Present & Future Possibilities & Necessities

Abstract

The Fed's new Community QE Facility, which is unprecedented in Fed history, will function as a literal lifeline to States and their Subdivisions. But it remains, precisely because of its novelty, unfamiliar and possibly even off-putting or intimidating to many State and City financial officers, not to mention Mayors, Governors, City Councils and State Legislatures. It also continues to fall short of what will be required if our States, our Cities, and our federal polity itself, which the present White House occupancy is doing virtually nothing to assist, are to survive the present pandemic.

Continuing unfamiliarity on the part of State and City officials with Community QE raises the danger that those in serious need of funding to address the present pandemic will not seek or receive it. It also diminishes the likelihood that City and State officials will press the Fed to do a further easing of terms – and this form of pressure will be critical if the Facility is to do all that it’s meant to do.

This Memorandum is meant to solve those two problems. It first briefly summarizes what the newly eased MLF enables now. It then addresses what the new Facility probably will, and, at least as importantly, must enable in future. The Memorandum then closes with an updated three-phase ‘Game Plan’ for States and Cities to put into operation the moment the Fed makes clear that the MLF is not a mere ‘virtue signal,’ but a sincere offer of badly needed funding – by actually beginning to provide funding.

Keywords: Community QE, Coronavirus, COVID-19, Fed, Federal Reserve, Federal Reserve Act, Fiscal Federalism, Muni Market, Municipal Finance, Municipal Liquidity Facility, Pandemic, Pandemic Response, Public Finance, State Finance