Fed expands emergency coronavirus loans to smaller cities, counties after criticism

The Federal Reserve on Monday expanded the range of cities and counties eligible for relief from an emergency coronavirus lending program for local governments after criticism about the facility’s narrow reach.

The central bank said Monday it would open its Municipal Liquidity Facility (MLF) to cities with at least 250,000 residents and counties with at least 500,000. The program was previously limited to cities of 1 million residents or more and counties of at least 2 million, cutting off some of the municipalities hit hardest by COVID-19.

The $2.2 trillion coronavirus economic relief bill signed by President Trump in March directed $454 billion to backstop Fed emergency lending programs deployed to protect the economy and stabilize financial markets. That measure directed the Fed to open the Municipal Liquidity Facility, a program where the central bank would buy bonds directly from local governments facing financial peril because of the pandemic.

The Fed on April 9 announced it would purchase $500 billion in debt from city and county governments through the MLF as part of an additional $2.3 trillion in emergency loans. While the Fed was praised by some for its unprecedented effort to aid governments, critics noted that the population thresholds boxed out some cities and counties in desperate need of aid.

Brookings Institution fellow Aaron Klein and senior fellow Camille Busette wrote that even though black Americans make up a disproportionate number of COVID-19 victims, “none of the thirty-five most African American cities in America meets the Fed’s criteria for direct assistance.”

These parameters would exclude the entire metropolitan statistical areas of Atlanta, Baltimore, Boston, Pittsburgh and Detroit, they wrote.

All six now meet the Fed’s new cutoffs for population, but the central bank also said Monday it would purchase bonds only from local government with high credit ratings, potentially excluding cities and counties with preexisting, longstanding financial troubles.

The Fed also announced it would extend the length of MLF loans, raising the maximum maturation time for the bonds it will purchase to 36 months from 24 months. That gives the local government receiving Fed assistance up to another year to repay the loan.

The Fed’s expansion of the MLF comes amid an intensifying debate over how much aid the federal government should offer states facing spikes in unemployment claims and plummeting revenue.

Top Washington, D.C., Republicans including Trump and Senate Majority Leader Mitch McConnell (R-Ky.) have spoken out against sending money to Democratic-run states after already approving trillions in aid and emergency loans. McConnell went as far as to suggest that states should file for bankruptcy, a legally dubious proposal that provoked backlash from a bipartisan group of governors and lawmakers.

Updated at 6:05 p.m.