Federal Reserve lowers Population Limits, Expands Maturity Period on Municipal Liquidity Facility

By Kenneth Hunter, Line Item Editor

On April 27th, the Federal Reserve announced changes to the structure of their recently-created Municipal Liquidity Facility, established earlier in April as part of their unprecedented response to the fiscal challenges created by the COVID-19 Pandemic.

The liquidity facility is able to purchase up to $500 Billion in short-term notes issued by states, counties, and municipalities. The changes announced April 27, 2020, include the following:

  • Lowering the municipal population minimum from 500,000 to 250,000;
  • Lowering the county population minimum from 1 million to 500,000;
  • Extending the maximum maturity period from 24 months to 36 months;
  • Establishing a requirement borrows have an investment grade rating from at least 2 “major nationally recognized statistical rating organizations” as of April 8, 2020;
  • Allow for participation of “certain multistate entities”; and
  • Extending the termination date of the program to December 31, 2020.

“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 stated in a press release.

These changes significantly-expand the eligibility for liquidity with respect to the number of local governments able to participate. According to Wells Fargo Economics Group, the eligible pool of localities (87 cities, 140 counties) is now nearly 9 times as large and represents more than 162 million Americans, three times prior eligibility.

“The expanded MLF represents the Fed’s commitment to provide liquidity wherever it can, without taking significant credit risk,” stated Wells Fargo Senior Economist Mark Vitner. “The Fed is walking a fine line by primarily taking liquidity risk—which it can easily do as it does not mark-to-market—but minimal credit risk.”

Vitner also offered the following commentary:

“As such, the Fed’s latest moves will primarily help higher-rated municipalities. A better functioning municipal market, however, will help a wider set of borrowers. Still, while it can inject liquidity, the Fed is limited in its ability to address solvency, or plug the gaping budget holes of states, cities and counties. Such a fix will require help from the federal government and a remarkable degree of fiscal discipline from state & local governments once the economy is on the mend. Direct state & local assistance is at the center of ongoing negotiations for the next round of fiscal relief. The stakes are high—state & local governments comprised 8.5% of GDP in 2019, and austerity at the local level was a major weight on the recovery from the Great Recession—real state & local government spending did not recover its prerecession level until Q3-2017. Even with federal assistance, states are going to have to find efficiencies in order to deal with the loss of revenues from COVID-19 shutdowns.”




ABFM 2020 Conference Call for Proposals EXTENDED to May 29th

The deadline to submit panel, paper, and poster proposals for ABFM’s 32nd annual research conference, scheduled for September 24-26, 2020, at the Hyatt Regency Miami, has been extended to May 29. Notifications to proposers and the opening of conference registration are planned for the second half of June.

The conference planning committee is actively working to stay abreast of the situation, evaluate a range of options for responding to contingencies, and adapt conference plans as the COVID-19 situation continues to evolve.

But for now, be sure to

May 29th is the revised deadline for proposals.

We welcome your questions, comments, and suggestions: please send them to abfmconference2020@gmail.com.

GFOA Revises “Debt 101” Guidebook

GFOA’s Committee on Governmental Debt Management recently revised the resource guide Debt 101: Issuing Bonds and Your Continuing Obligations. The publication is intended for the first-time or infrequent bond issuer in “muniland.” It provides a high-level outline of the debt issuance process and discusses what needs to happen after the issuance is completed.

Click Here to View “Debt 101: Issuing Bonds and Your Continuing Obligations”

Join Us for ABFM Virtual Exchange, April 30th, 12 Noon Eastern

We want to encourage our members to join our first Virtual Exchange, next Thursday, April 30th, at 12 Noon Eastern Time. This will be a chance for members to discuss what they are up to and share their thoughts.

Click Here for Login Information

GASB Proposed to Postpone Effective Dates

The Governmental Accounting Standards Board (GASB) today proposed to postpone the effective dates of provisions in almost all Statements and Implementation Guides due to be implemented by state and local governments for fiscal years 2019 and later.

In light of the COVID-19 pandemic, the Exposure DraftPostponement of the Effective Dates of Certain Authoritative Guidance, is intended to provide relief to governments. The proposal would postpone by one year the effective dates of provisions in the following pronouncements:

  • Statement No. 83, Certain Asset Retirement Obligations
  • Statement No. 84, Fiduciary Activities
  • Statement No. 87, Leases
  • Statement No. 88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements
  • Statement No. 89, Accounting for Interest Cost Incurred before the End of a Construction Period
  • Statement No. 90, Majority Equity Interests
  • Statement No. 91, Conduit Debt Obligations
  • Statement No. 92, Omnibus 2020, paragraphs 6–10 and 12
  • Statement No. 93, Replacement of Interbank Offered Rates, paragraphs 13 and 14
  • Implementation Guide No. 2017-3, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (and Certain Issues Related to OPEB Plan Reporting), Questions 4.85, 4.103, 4.108, 4.109, 4.225, 4.239, 4.244, 4.245, 4.484, 4.491, and 5.1–5.4
  • Implementation Guide No. 2018-1, Implementation Guidance Update—2018
  • Implementation Guide No. 2019-1, Implementation Guidance Update—2019
  • Implementation Guide No. 2019-2, Fiduciary Activities
  • Implementation Guide No. 2019-3, Leases.

The GASB did not propose postponing the other provisions of Statement 93 or Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, because the pandemic was factored into the establishment of the effective dates for those pronouncements.

The GASB is working under an expedited schedule to issue this guidance as quickly as practicable. The Exposure Draft is available on the GASB website, www.gasb.org, with a comment deadline of April 30. The GASB invites stakeholders to review the proposal and provide comments. The Board is scheduled to review stakeholder feedback and consider a final Statement for issuance on May 8.

In response to the COVID-19 pandemic, the GASB provides a number of resources for stakeholders, including an emergency toolbox, on its website at www.gasb.org/COVID19.