Members of the Public Finance Network are asking the Federal Reserve to expedite its purchase of municipal securities to help restore equilibrium to the market.
Twenty three groups ranging from the National League of Cities and U.S. Conference of Mayors, to the National Association of Counties to the National School Boards Association, made the request Monday evening.
“The issuance of municipal bonds precipitously declined from $10 [billion] -15 billion per week in early March to zero on March 25,” said the letter addressed to Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin.
The primary market had all but closed over the course of market turmoil as state and local goverment issuers avoided the volatile rate environment that began on March 9 and continued for three weeks.
News that a $2 trillion emergency spending bill working its way through Congress would include an Exchange Stabilization Fund for the Federal Reserve to purchase municipal securities “touched off a significant recovery in the secondary market last week, and there are tentative signs that the primary market will begin to expand this week,” the letter said.
The Coronavirus Aid, Relief, and Economic Security Act was signed into law by President Trump on Friday after passing the House by voice vote earlier in the day and passing the Senate 96-0 two days earlier.
Section 4003(b)(4) of the bill, also known as the CARES Act, gives the Fed and Treasury up to 10 days to begin purchasing municipal securities on the secondary market.
Because the markets are closed on April 10 in observance of Good Friday, that deadline is Monday, April 13.
The letter urges speedier action.
“Stability in our $3.8 trillion municipal bond market is particularly important during this crisis as state and local governments and the municipal bond market provide critical support for the infrastructure — including hospitals — needed to care for and support our citizens,” said a letter.
Market participants are expecting significant and broad-based relief from the Fed and Treasury delivered on an expedited basis.
“However, if the new facility comes up short of those expectations, we fear that the market will once again take a turn for the worse,” the letter warned. “It is especially important to the Public Finance Network that the Federal Reserve and Treasury design a program with the flexibility to support all types of issuers and credits in the municipal bond market.”
Brock said Tuesday that the Fed has not indicated yet what day it will begin purchasing municipal securities nor what type of securities it will purchase.
“What’s great about the legislative intent here is that it’s wide open and I hope they look at all sectors of the public space and all spectrums of types and tenures of bonds,” said Emily Brock, director of the federal liaison center at the Government Finance Officers Association who spearheaded the letter. “Those that are at the long-end of the yield curve as well as short.”
The letter also highlighted how the 90-day delay in the federal income tax filing deadline until July 15 has created a lag in revenues for state and local governments as well as other governmental entities.
“Looking forward, state and local governments and special districts and other bond issuers know that preparing for a pandemic requires strengthening the infrastructure network that underpins their communities,” the letter said. “Therefore, funding and financing infrastructure will remain an issue of paramount importance for many years to come.”
The National Governors Association was conspicuously absent from the signatories but many state and local groups did participate in the request.
The full list of signatories included: the Government Finance Officers Association, American Planning Association, American Public Works Association, American Society of Civil Engineers, American Water Works Association and Council of Infrastructure Financing Authorities.
Other signers were: the Council of State Governments, the International City County Management Association, International Public Management Association for Human Resources, Large Public Power Council and National Association of Bond Lawyers.
Others were: the National Association of Municipal Advisors, the National Association of Counties, National Association of Health and Educational Facilities Finance Authorities, National Association of Regional Councils, National Association of State Auditors Comptrollers and Treasurers, National Association of State Treasurers, National Community Development Association, National Association of Clean Water Agencies, National Council of State Housing Authorities, National League of Cities, National School Boards Association and the United States Conference of Mayors.
