Federal Reserve’s Two-Year Loans Will Not Rescue NY, NYC, MTA from COVID Fiscal Disaster


Feds’ “Municipal Liquidity Facility” Two-Year Loans Will Not Rescue New York State or New York City from COVID Financial Disaster

$2T Fed COVID “Bazooka” Includes Two-Year Loans — Not Grants

Some press accounts have mischaracterized how the Federal Reserve Bank’s $2T COVID emergency lending program could affect New York State and NYC finances. The Fed is NOT providing a “bail-out” or emergency grants for COVID-stricken state and local governments or public authorities like the MTA.

The Fed’s package includes a $500B Municipal Liquidity Facility that can make two-year loans to cities of more than 1M, counties of more than 2M and all states. (Technically, the Fed will buy Bond Anticipation Notes, “BANs.”)

Municipal Liquidity Facility Terms

  • Loan must be repaid in two years (similar to two-year BAN).
  • Eligible: cities of 1M plus, counties of 2M plus, states, borrowing entities within these.
  • One borrowing entity per state or eligible county or city.
  • Loan of up to 20% of “general revenue from own sources.”
  • Cost of loan: whatever Fed determines plus 1% loan amount.

We note that the Fed’s Primary Market Corporate Credit Facility is buying corporate debt that must be repaid in four years, instead of the two-year repayment schedule for local government.

Bottom Line for New York State, New York City, MTA
The Municipal Liquidity Facility is a short-term loan from the Fed of up to 20% of “general revenue” to only one New York State-level government bond issuer and only one New York City issuer. No NYS counties outside of NYC have a population of 2M or more. Assuming “general revenue” means state- or city-collected taxes and fees, this amounts to a two-year loan of up to about $16B to New York State (20% x $80B). The State is the most logical state-level borrower since it has the largest revenue and could borrow the most.

We believe it is unlikely the Governor will allow the MTA to borrow directly from the Municipal Liquidity Facility, since it has much lower “general revenue” and thus could borrow much less than the state government. However, the Fed program could benefit the MTA by reducing the incentive for the State government to divert or “raid” MTA dedicated taxes and funds like MMTOA.