The Federal Reserve on April 9 announced that it will help state and local governments manage cash flow stresses caused by the coronavirus pandemic by establishing a Municipal Liquidity Facility that will offer up to $500 billion in lending to states and municipalities.
The Treasury will provide $35 billion of credit protection to the Federal Reserve for the Municipal Liquidity Facility using funds appropriated by the CARES Act.
To help state and local governments better manage cash flow pressures, the Municipal Liquidity Facility will purchase up to $500 billion of short-term notes directly from U.S. states (including the District of Columbia); U.S. counties with a population of at least two million residents; and U.S. cities with a population of at least one million residents.
The Federal Reserve also said it will continue to closely monitor conditions in the 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.
While most public power utilities or cities with a public power utility will not be able to directly access this new facility, the Federal Reserve noted that eligible state-level issuers may use the proceeds to support additional counties and cities.
In addition, all municipal issuers may be able to indirectly benefit from the overall increase in market liquidity.
The Federal Reserve’s announcement is available here.