MNI POLICY:Fed Widens Loan Program to Many More Municipalities

By Evan Ryser

     WASHINGTON (MNI) - The Federal Reserve on Monday announced an expansion of

its USD500 billion aid program to bolster local government finances by expanding

the scope of eligible issuers and lengthening the duration of the program. 

     The facility, originally announced April 9, is now available to counties

with a population of at least 500,000 residents, down from the initial

requirement of 2 million, and cities with a population of at least 250,000

residents, down from 1 million. Certain multistate entities are also allowed to

participate, the Fed said. 

     "The Federal Reserve will continue to closely monitor conditions in primary

and secondary markets for municipal securities and will evaluate whether

additional measures are needed to support the flow of credit and liquidity to

state and local governments," the Fed said in a statement. 

     The central bank has faced pressure from elected officials to expand the

number of municipalities that are able to borrow through the Fed. 

     On Monday, it also extended the maximum term of notes to 3 years from 2

years, and said eligible issuers must have had an investment grade rating as of

April 8, 2020 from at least two major ratings agencies. If a municipality has

been downgraded since then, it must be rated at least BB-/Ba3 by two or more

agencies at the time of access to the Fed facility. 

     The termination date for the facility has been extended by three months to

Dec. 31, 2020. 

     The Fed is also considering expanding the muni aid program to allow a

limited number of governmental entities that issue bonds backed by their own

revenue to participate directly as eligible issuers. "Any decision to include

any such additional eligible issuers would be publicly announced at a future

date," it said. 

     The program, set up with USD35 billion of credit protection from the the

Treasury Department, is also expected to be used by some states as a way to

provide relief  downstream to further counties and cities. 

     Some state and county officials told MNI before today's program expansion

that they had not planned to use the aid, citing conflicts with balanced-budget

laws and the relatively exclusive eligibility requirements. 

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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