Fed approves expansion of state and local support programme

WASHINGTON (AP) — The Federal Reserve has approved an expansion of its USD500 billion emergency programme to support state and local governments.

The expansion will allow states to have at least two cities or counties eligible to tap the Fed support programme regardless of population.

The Fed board approved the change on Wednesday on a 5-0 vote.

It marked the second time the programme, named the Municipal Liquidity Facility, has been expanded. Before the latest announcement, the programme was available to all 50 states and the District of Columbia and one borrower for each county of at least 500,000 people and city of at least 250,000. Those population limits were raised from an earlier restriction of counties of at least two million people and cities of at least one million residents.

Members of Congress had complained that the Fed’s population restrictions would keep more lower population areas from participating.

The support programme, which could provide up to USD500 billion in emergency loans to state and local governments, has been slow to become operational. It also faced strong criticism for imposing too many restrictions on the support it will provide to states and local governments struggling to deal with the adverse effects of COVID-19.

The Fed said in addition to the local governments who can participate, governors of each state will be able to designate two entities who derive their revenue by operating facilities such as toll roads, public transit or airports to be eligible to directly participate in the Fed programme.

Under the programme, the Fed will buy short-term debt sold by states and cities to cover cash-flow shortages the pandemic created.

The Fed is operating the programme in conjunction with the Treasury Department under emergency powers first granted the central bank to deal with the Great Depression of the 1930s.