The Federal Reserve on March 23 took several steps to address the financial fallout from the ongoing COVID-19 pandemic including moves to purchase municipal debt.
Specifically, the Federal Reserve noted that it is taking action to facilitate the flow of credit to municipalities by expanding the money market mutual fund liquidity facility to include a wider range of securities, including municipal variable rate demand notes and bank certificates of deposit.
In addition, the Federal Reserve said that it will facilitate the flow of credit to municipalities by expanding the commercial paper funding facility to include high-quality, tax-exempt commercial paper as eligible securities. In addition, the pricing of the facility has been reduced.
“While great uncertainty remains, it has become clear that our economy will face severe disruptions. Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate,” the Federal Reserve said.
Prior to the announcement, Sens. Bob Menendez, D-N.J., and David Perdue, R-Ga., had introduced the Municipal Bonds Emergency Relief Act, which would allow the Federal Reserve to buy municipal debt to help local and state governments finance the delivery of key public services due to the COVID-19 pandemic.
The Government Finance Officers Association has said that the Federal Reserve announcement would apply to just 3 percent of all municipal debt and so the American Public Power Association still strongly encourages its member utilities to reach out to their representative and senators in support of including the text of this bill in coronavirus response legislation.