7ILLUSTRATION
BY
SAMANTHA
SLINN
November 23, 2020 ◼ BLOOMBERG OPINION
America’sstateandlocalgovernmentsfacea difficultwinter.
Alreadyunderseverefinancialpressure,they’llseetheir
resourcesstretchedfurtherstillbya resurgentpandemic.
Congressneedstogivethemnewfiscalaidnow,butwhether
thatwillhappenis indoubt.Giventheseuncertainties,this
is notimetoremovetheironereliablelifeline:theFederal
Reserve’shighlysuccessfulprogramtoensuretheycanbor-
rowwhattheyneed.
TheFedandtheTreasuryintroducedthe Municipal
LiquidityFacilityamidtheCovid-inducedmayhemofMarch
andApril—whenmarketsfrozeandborrowingcostsmore
thandoubledforeventhemosthighlyratedcities.Torestore
calm,thecentralbankpledgedtobuydebtsecuritiesdirectly,
ata closer-to-normalyield,fromanycreditworthyissuerthat
couldn’traisemoneyfromprivateinvestors.
It worked.Simplybybeinginplace,thebackstoprevived
themarket.Itbroughtyieldsbelowpre-pandemiclevels,
andonlytwoissuers(IllinoisandNewYork’sMetropolitan
TransportationAuthority)hadtotap it,usinglessthan
$1.7billionofthe$500billionavailable.It’shardtoimaginea
moreeffectiveuseoftaxpayerresources.
Justoneproblem:TheprogramexpiresonDec.31,and
RepublicanlegislatorsandtheTreasuryopposeanextension.
Thiswouldn’tbesoseriousif thecoronaviruscrisiswereebb-
ingandtheeconomywereona glidepathtorecovery.They’re
not.Casesandhospitalizationsareontherise,threatening
renewedsocialdistancingmeasuresanda slowerexpansion
(orworse).Thiswillreducemunicipaltaxrevenueagain—
andit’salreadyprojectedtocomeuphundredsofbillions
ofdollarsshort.Layoffsandservicecutsarelooming.With
RepublicanslikelytoretaincontroloftheSenate,it’sunclear
when,if ever,legislatorswillsupporta newreliefpackage.
Borrowingis nosubstituteforfiscalsupport.Buttheback-
stopis crucialtohelpmunicipalitiesweatherthesestresses.
It shouldremaininplaceuntilofficialsarecertainit’snolon-
gerneeded,ashappenedwithemergencylendingfacilities
afterthe 2008 financialcrisis.TheFedshouldalsoconsider
expandingaccess—forexample,byloweringthepopulation
thresholdfrom250,000,sosmallercitiescanbenefit.
Judgingbythelackofjittersinmunicipalbondmarkets,
investorsareassumingthatcommonsensewillprevail.
It’stobehopedthey’reright.TheTrumpadministration
shouldextendthefacilityimmediatelyand,if it failstodoso,
President-electBidenshouldpledgetosetthingsstraightafter
hetakesofficeonJan.20.Thefinancesofcitiesandstates
acrossthecountrydependonit.<BW>Formorecommentary, go
to bloomberg.com/opinionCities Still Need Their
Pandemic Lifeline
From the Fed
The world’s airlines and plane makers gather virtually on
Nov. 24 for the annual general meeting of the International
Air Transport Association. They will discuss strategies to
help the industry recover from its worst-ever slump. ▷ 16▶ A Grounded Industry
▶ U.S. retailers are
preparing for Black
Friday’s annual holiday
shopping rush, on
Nov. 27, though tighter
pandemic restrictions
may keep many
consumers out of stores.▶ Minutes from the U.S.
Federal Open Market
Committee’s Nov. 4-
meeting will be released
on Nov. 25. At its last
gathering, the Fed kept
borrowing costs at
close to zero.▶ Former heavyweight
boxing champion Mike
Tyson, 54, faces off
against Roy Jones Jr.,
51, in a comeback match
at the Staples Center in
Los Angeles on Nov. 28.▶ The Institute of
International Finance
holds its emerging-
markets central-
banking conference via
livestream on Nov. 23-
to discuss the future of
monetary policy.▶ Germany’s Ifo Institute
releases its monthly
survey of business
sentiment on Nov. 24. It’s
one of the most closely
watched economic
indicators in Europe’s
largest economy.▶ In the week starting
Nov. 23, U.K. and EU
negotiators hope to
reach a deal on what
trade and commerce
will look like after the
Brexit transition ends on
Dec. 31, 2020.◼ AGENDA
● This year’s
record-breaking
hurricane season
continued
unabated, with
Iota, the 30th
named tropical
storm, making
landfall on Nov.
in Nicaragua.● On Nov. 17, Judy Shelton
failed to garner enough
votes in the U.S.
Senate to be
confirmed to the
Federal Reserve Board.
Majority Leader Mitch
McConnell may try to
schedule a second vote on
the controversial nominee.