Federal Reserve Revises COVID-19 Municipal Lending Program, Includes More Eligible Entities
(May 1, 2020) – The Federal Reserve announced April 27 that it will expand the eligibility criteria for local governments regarding its purchase of municipal debt to help with cashflow challenges from the COVID-19 pandemic.
The Fed’s Municipal Liquidity Vehicle special purpose vehicle (SPV), which was authorized by Congress in late March in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to help with COVID-19 economic relief, will now accept borrowers from cities of at least 250,000 population and counties of at least 500,000. The previous cutoff had been cities of 1 million and counties of 2 million. This change expands eligibility to at least 185 new municipal entities across the nation.
The SPV was created to enhance the liquidity of the short-term municipal securities market and provide eligible municipal entities with additional short-term cash flow to deal with lost revenue or additional expenses due to the COVID-19 pandemic. The money received by municipalities under the program can be used to address BOTH lost revenue and additional expenses that are directly related to COVID-19, although NACWA does not have details on what information the Fed is requiring to substantiate claims made under the program. More information about the program can be found in this FAQ published by the Federal Reserve Bank of New York and in this information provided by PFM Financial Advisors. NACWA members with questions about how this program might benefit them should consult their bond counsel.
It is important to note that municipal funding available through the Fed SPV is entirely distinct from the direct money made available for states and large cities in the CARES Act. Those funds, which flow directly through the US Treasury, are only available to the largest cities and counties in the US and may only be used for additional costs incurred as a result of COVID-19 – the funds may NOT be used to address lost revenue. Eligible additional costs can include things like overtime, telecommuting costs, and additional personal protective equipment (PPE). Most of these funds have already been distributed to eligible municipal entities – if NACWA members fall under these eligible entities, they should engage with their municipal governance bodies to request access to the funds.
Please contact NACWA’s Nathan Gardner-Andrews if you are a member utility pursuing any of the Fed SPV lending options and/or funds made directly available to municipal entities via the CARES Act program. We need to learn from you about your experience with this program and whether there may be viable opportunities for our members more broadly.