Fed Offers Aid to States and Large Cities and Counties

New Municipal Liquidity Facility Announced

On April 9, 2020, the Federal Reserve announced a new program to relieve state and local governments from cash flow pressures arising from the COVID-19 pandemic. Using its new Municipal Liquidity Facility, the Fed will purchase up to $500 billion of notes from eligible issuers using funds appropriated under the CARES Act.

Eligible notes are tax anticipation notes (TANs), tax and revenue anticipation notes (TRANs), bond anticipation notes (BANs) and similar short-term notes with maturity dates no longer than 24 months after issuance.

The eligible issuers are states, the District of Columbia, counties with more than two million people, and cities with more than one million (or an instrumentality that issues on behalf of one of these). Each entity is limited to loans worth no more than an aggregate amount of 20% of the general revenue from its own sources and utility revenue for fiscal year 2017. Only one issuer per state, county, or city is eligible.

What does this mean for Weaver’s clients?

This program is not open to most local governments, as there are only 10 cities and 16 counties (see below) in the U.S. that meet the criteria. Fortunately, states may request the Fed to purchase eligible notes in order to assist political subdivisions that are not eligible.

If you are an eligible issuer, you may use the proceeds to help manage the cash flow impact of income tax deferrals resulting from filing extensions; potential reductions of property and sales taxes and other revenues; increases in expenses related to or resulting from the COVID-19 pandemic, and requirements for the payment of principal and interest on loan obligations.

Eligible issuers may also use the proceeds to purchase similar notes issued by political subdivisions to assist them in managing their cash flow impacts resulting from COVID-19.

See the complete Federal Reserve Term Sheet.

Cities with populations >1 million

Counties with population >2 million:

For questions or more information, contact a Weaver professional today. We’re here to help. 

© 2020