Rep. Rashida Tlaib has so far been leading this effort to support financial relief in this crisis moment by minting coins and using financing to support spending and alleviate debt at the federal, state, and local levels. She put forward the Emergency Relief for State, Territorial and Local Governments Act which would require the Federal Reserve to commit to purchasing short-term municipal debt as necessary for stabilizing funding needs during and in the aftermath of the COVID-19 pandemic. The bill will use the Fed’s purchasing power to ensure that state governments can easily roll over debt and meet their funding needs throughout the COVID-19 crisis by relieving some of the stresses weighing on the secondary municipal market.
The Federal Reserve can also directly support state and municipal government bond markets, in order to reduce ongoing funding pressure and allow refinancing of existing debt to reduce long-term interest expenses. So far, the Federal Reserve has established a new facility that can lend to third party investors using state and municipal debt as collateral. However, this only provides indirect support to state and local governments. The Federal Reserve should also purchase debt directly from state and local governments, in order to reduce ongoing funding pressure and allow refinancing of existing debt to reduce long-term interest expenses.
To ensure that state and local governments get the monetary and financial relief they need, we, the undersigned, call on the federal government to:
- Provide direct fiscal grants to state and local governments on both a per-capita and as-needed basis, to address both the public health crisis and resulting economic crisis, which has resulted in severe declines in state and local tax revenue.
- Require that the next relief bill include Emergency Relief for State, Territorial and Local Governments Act which mandates the Federal Reserve banks provide relief for the secondary market and purchase new state and municipal debt issuance, as highlighted in a letter signed by eleven members of the U.S. House of Representatives, led by Representatives Tlaib, Ocasio-Cortez, and Pressley.
- Require that Menendez-Perdue legislation is also included which would give the Fed authority to buy municipal debt to help local and state governments. Any state or local government should have the right to borrow through this facility up to at least some minimum amount based on the shortfall of current revenue over 2019 levels. Debt purchased by the Fed through this facility should be held for at least five years after the crisis, or if shorter term, automatically rolled over during that period.
- Direct the Federal Reserve to establish a domestic dollar swap line facility and purchase state and local currencies, warrants, and other tax-receivable obligations on an as-needed basis to provide additional liquidity and credit support to domestic markets.
- Direct the Federal Reserve to bring interest rates on state-local debt it holds close to zero by refinancing it at or below the current Federal Funds rate, and to buy additional state and local debt and similarly refinance it.
- Grant the Federal Reserve permanent authority to purchase state and local debt of any maturity, so that emergency legislation is not required for the Federal Reserve to support state and local governments in future crises.
- Pass legislation granting a full federal guarantee to all debt issued by state and local governments for the duration of the crisis, to ensure that borrowing to maintain essential public services and public investment does not adversely affect the borrowing government’s credit rating.
Taking these necessary steps will help support our local responses through the COVID-19 pandemic and set us on the path to a speedy and equitable recovery.