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Free AccessMNI EXCLUSIVE: Fed Muni Aid Dogged By States Who Can't Accept
By Evan Ryser
WASHINGTON (MNI) - The Federal Reserve's USD500 billion for state and
municipal lending is being rejected by a majority of officials who spoke to MNI,
saying it conflicts with balanced-budget laws and cuts off too many cities.
The unprecedented program targets the USD3.9 trillion municipal debt market
and aims to lend for as long as two years. The loans for now are open to 76
borrowers including states, the District of Columbia, counties of at least 2
million residents and cities of at least 1 million. Senate Minority Leader Chuck
Schumer Monday said Fed Chair Jerome Powell assured him the program will be
expanded to more cities and counties.
"We also have no cities or municipalities that met the program's population
threshold," Maine's Treasurer Henry Beck told MNI, adding there doesn't seem a
need to tap the facility. "Anything we borrow must be paid back in the same
fiscal year," he said of local financing rules. "That could pose a challenge."
Officials from Colorado and Connecticut also said they don't have a clear
plan to use the Fed program, and Pennsylvania hasn't decided. California,
Florida and New York didn't respond to requests for comment. While many state
and local governments are squeezed by claims for jobless benefits and business
closures that curb tax receipts, on top of longstanding troubles with pension
costs, there is a deeper problem borrowing short-term for a health crisis that
may create lasting damage.
"If we can't rely on a return to normal for ongoing revenues, sales,
etcetera, then making use of the facility might be diverting a cashflow
problem," Beck said. Congress or the Fed could improve aid for states by making
repayment more flexible, he said.
--TAXPAYER RIGHTS
Other states are limited by constitutional provisions making it difficult
to run up debt or require quick repayment, said Dee Wisor, former president of
the National Association of Bond Lawyers. Some legislatures or voters must also
approve debt issued under the current Fed program before it lapses at the end of
September, Wisor said.
Treasurer Shawn Wooden of Connecticut has said the state has a
"historically high" USD2.5 billion reserve fund and doesn't anticipate using the
program. The state "may very well" utilize the Fed's program for downstream
municipalities although changes to state law may be necessary, Wooden said.
Colorado faces a barrier from its taxpayer bill of rights, a
difficult-to-change law limiting taxes and spending. Voters must approve the
"creation of any multiple-fiscal year direct or indirect" debt incurred by the
state.
Treasurer Dave Young said that because only his state government qualifies,
he is "considering how to best include cities and counties." Colorado's unique
tax system "limits any short term borrowing," Young said.
Pennsylvania is awaiting Fed guidance and may need legislation to
participate, according to a spokeswoman. No decision has been made.
--CITIES
The cities of San Jose, Philadelphia, and Chicago are awaiting more
information and evaluating short-term borrowing needs, officials told MNI.
Phoenix hasn't determined whether it will use the program but details to go
over include "interest rate comparability and affordability, payback terms and
provisions and permissible spending limitations," spokesperson Matthew Heil
said.
Houston's Harris County doesn't plan on using the program according to
Treasurer Dylan Osborne. Many local finance leaders aren't even aware of the
program, he said. "The Fed created this, and nobody knows about it."
Some states may be more well-suited to borrowing Fed cash to lend to cities
and counties. New York has its Dormitory Authority which can lend to any
government and non-government entity in the state.
"Any technical fixes would have to be on the state-end, state-by-state,
because a number of states have those same requirements for payback of temporary
loans within the fiscal year. There is a mismatch," said Beck, the Maine
treasurer.
Matt Fabian, partner at Municipal Market Analytics, said: "What the Fed did
was really a patch. There is still injury underneath, but this should hold
things together for a while."
--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com
[TOPICS: MMUFE$,M$U$$$,MC$$$$,MX$$$$,M$$CR$,M$$FI$,MFU$$$,MGU$$$]
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.