Letter to Jerome Powell, Chair of the Federal Reserve - Warren, Colleagues Urge Fed to Reconsider Arbitrary Population Requirements That Lock Most Cities and Counties Out of CARES Act Budget Help

Letter

Dear Chairman Powell,

We write to you today to express our concerns regarding the seemingly arbitrary city and county
population thresholds used to determine eligibility for the Federal Reserve's recently announced
Municipal Liquidity Facility program authorized in the Coronavirus Aid, Relief, and Economic
Security Act (CARES Act; P.L. 116-136). Cities and counties across the country are in desperate
financial straits and need assistance from Congress and the Federal Reserve, and the Federal
Reserve's announcement last week that it would be purchasing up to $500 billion of debt from
eligible cities and counties was welcome news.1 But by limiting the direct purchase of short-term
notes to cities with at least one million residents and to counties with at least two million
residents, the Federal Reserve's program will benefit only 15 counties and 10 cities, leaving out
much of the country, including some of the hardest-hit communities.

With over 50,000 different issuers within the municipal bond market, we understand that the
Federal Reserve had to take the difficult step in establishing parameters on what type of
municipal bonds can be accepted into the facility.3 However, the population limitation is
arbitrary and unacceptable and will hurt hundreds of communities nationwide. We, therefore,
strongly urge you to revise the terms of the Federal Reserve's Municipal Liquidity Facility
program by considering more inclusive alternatives to reducing the complexity of the municipal
liquidity facility.

As we look to weather our Nation's health and economic crisis, we have been in constant contact
with state and local governmental entities affected by the novel Coronavirus (COVID-19)
pandemic across our country. Cities and counties are on the front lines in this public health
emergency and need assistance from the federal government to address the lost revenue from and
increased costs of the fight against COVID-19. The pandemic has caused significant revenue
shortfalls and has also increased costs for local governments. A National League of Cities report
released earlier this week found that more than 2,100 cities are planning for major budget shortfalls this year as a result of unexpected increase in expenditures and loss in revenue.4 This
has resulted in localities scaling back projects and services to focus on curbing the spread of the
virus. Now more than ever, localities need the expeditious support of the federal government to
fill these short and long-term gaps in funding.

On a local level, localities are experiencing and responding to these shocks in a variety of ways.
Baltimore City, Maryland (population 602,000) anticipates a $42.3 million budget shortfall as a
result of COVID-19 and has been forced to undergo a spending and hiring freeze.5 The City of
Boston (population nearly 695,000) will see tens of millions in lost revenue and unexpected
expenses related to the immediate public health response and the long term effects of restarting
the local economy. Because of the pandemic, Toledo, Ohio (population: 276,491) anticipates a
budget deficit of $10 million but it could balloon as high as $50 million. To trim costs, the city
has placed over 10% percent of its employees on temporary emergency leave - a decision that
has affected every facet of city government, including the police and fire departments. And, New
York's Westchester County (population 967,506) is estimating over a $100 million decline in
sales tax revenue, plus nearly $16 million in reduced public transportation fares and $8 million in
county park fees. These are just four examples of how this economic shock is playing out around
the U.S.

Congress intended for the law to channel badly needed resources to state and local governments
that are fighting on the front lines of the coronavirus pandemic while grappling with a historic
economic slowdown and billions of dollars in lost revenue. By imposing the limits set out in its
Municipal Liquidity Facility program, the Federal Reserve is denying the vast majority of our
country's local governments direct access to funding, leaving them in desperate straits. Without
quick access to federal assistance, these governments will be forced to cut services or raise
taxes--both of which can harm public health and the economy when they are most vulnerable.

As we continue to navigate this difficult time for our Nation, we must stay united in our resolve
to combat this virus and the economic crisis it has created, and the federal government must
provide all states and counties with much-needed assistance. We therefore urge you to expand
eligibility for the new Municipal Liquidity Facility.

Sincerely,