Federal Reserve expands access to coronavirus emergency loans to smaller towns, counties

The Federal Reserve on Wednesday expanded access to its emergency lending facility for city and county governments to ensure each state has at least two eligible borrowers for the coronavirus relief program.

The Fed announced that states that without a single county or city that reaches the population minimum for the bank’s Municipal Liquidity Facility (MLF) can designate two localities to use the program.

The MLF is designed to give financial support to state and local governments facing sharp drops in tax revenue and steep rises in costs driven by the coronavirus pandemic. The program allows cities with at least 250,000 residents and counties with at least 500,000 residents to acquire loans from by selling bonds to the central bank. The facility was created through the $2.2 trillion coronavirus relief bill signed in March and backed up with a portion of $454 billion allocated to the Treasury Department to protect the Fed from losses.

Lawmakers in each party have been largely supportive of the Fed’s response to the downturn caused by the pandemic and have praised the banks for offering trillions in loans and asset purchases to support the economy. But the Fed is also under pressure from Congress to speed up and expand the scope of its emergency lending efforts, particularly the MLF and a facility designed to help businesses that are too large to qualify for the Paycheck Protection Program.

Several senators urged the Fed during a May hearing to give smaller cities and counties a direct line to the MLF instead of depending on regional or state coalitions to apply on their behalf. 

Expanding access to the MLF could help cash-strapped local governments weather the immediate impact of the crisis, but Fed officials and economists have warned that it will not be enough on its own. Experts warn that without a significant increase in fiscal support from Congress, states will be forced to drastically cut spending, lay off employees and pull back services, risking a prolonged depression.