A group of more than 50 House Democrats on Thursday slammed the Federal Reserve for allowing mass public-sector layoffs by refusing to offer state and local governments the same favorable lending terms it has granted private corporations.
"It's time for the Federal Reserve to stop treating corporations better than state and local governments."
—Rep. Mark Pocan
In a letter (pdf) to Fed Chairman Jerome Powell, the lawmakers said the "harsh terms and penalty rates" the central bank set for its Municipal Liquidity Facility (MLF)—a $500 billion state and local aid initiative launched in April—has made the program "functionally unusable for the vast majority of the state and local governments that are technically eligible."
"There have been 1.5 million public-sector layoffs since March, and unless the Fed aligns its assistance to states and cities with its emergency lending to the private sector, mass unemployment, and emergency conditions will persist for years," the lawmakers wrote. "To that end, it must be noted that many of the Federal Reserve's corporate lending programs contain terms that are far more favorable than those included in the MLF."
"This includes, for example, far cheaper pricing, far longer terms, and even payment deferrals for corporations borrowing from the Main Street Lending Program, the Secondary Corporate Credit Facility, and the Term Asset-Backed Securities Loan Facility," the group of Democrats added, urging the Fed to establish more flexible and inexpensive lending terms for state and local governments.
The lawmakers also demanded that the Fed to extend MLF eligibility to smaller counties and territories.
"The Federal Reserve should make these fixes to the MLF before the damage to our economy and our communities becomes irreparable," the coalition of Democrats wrote.
The @federalreserve could prevent massive public sector layoffs. Instead, they've structured their lending so it's functionally unusable for most states & cities.
We're asking the Fed why they're withholding help from our communities in this crisis. https://t.co/P1y6MTXart
— Progressive Caucus (@USProgressives) August 6, 2020
Economists have warned that failing to rescue state and local governments as they face crushing budget shortfalls could send shockwaves through the entire U.S. economy and possibly lead to a "prolonged depression."
"The projected shortfall for 2021 fiscal year, which began on July 1 for most states, is much deeper than the shortfalls faced in any year of the Great Recession," the Center on Budget and Policy Priorities noted last month. "Without additional, substantial federal help, they likely will deeply cut critical program areas such as education and healthcare, lay off teachers and other workers in even greater numbers, and cancel contracts with many businesses."
Rep. Mark Pocan (D-Wis.), co-chair of the Congressional Progressive Caucus and one of the letter's signatories, tweeted Thursday that "it's time for the Federal Reserve to stop treating corporations better than state and local governments."
The letter was also signed by Reps. Rashida Tlaib (D-Mich.), Ayanna Pressley (D-Mass.), Joe Neguse (D-Colo.), CPC co-chair Pramila Jayapal (D-Wash.), and Alexandria Ocasio-Cortez (D-N.Y.).
Bharat Ramamurti, a member of the Congressional Oversight Committee tasked with monitoring Covid-19 bailout funds, said he hopes the Fed heeds the Democratic lawmakers' demands.
"There's no justification for them to offer worse rates and terms to states and cities than to risky companies with a far higher risk of default," Ramamurti tweeted. "And we know that sharp cuts in state and local spending will cause serious economic harm."