by J. Wesley Leckrone

Heather Long of the Washington Post reported that the Federal Reserve is changing the population threshold for its Municipal Liquidity Facility program (MLF). The program is a joint effort between the Federal Reserve and the Treasury Department that will purchase up to $500 billion in municipal bonds. MLF was designed to ease the liquidity crisis in muni bonds in the early stages of the COVID-19 shutdowns. Institutional investors were selling off muni bonds, which increased borrowing costs for state and local governments at the same time that they needed to borrow due to increased spending on COVID-19 related programs and a rapid decline in revenue (click here for an overview from the Fed).  The program covers debt from states, counties and cities, as well as multi-state entities formed through interstate compacts. Any of these eligible governments can use the MLF program to borrow on behalf of their political subdivisions.

When the program was announced on April 9, only counties with populations of 2 million or more and cities of 1 million were eligible (although states could borrow on behalf of other subdivisions within their boundaries). According to Census data, no counties, and only the city of Philadelphia (1.58 million) would qualify under these standards. On April 27 the Fed lowered the population thresholds to 500,000 for counties and 250,000 for cities. This did not have a profound effect on the eligible cities in Pennsylvania, as only Pittsburgh (301,048) met the new standards. However Pennsylvania counties fared better as the following were added to the list:

Allegheny (1.22 million)

Montgomery (828,604)

Bucks (628,195)

Delaware (564,751)

Lancaster (543,557)

Chester (522,046)

For more on the MLF program see this article from the New York Federal Reserve. Here’s a WaPo article on problems with the population limits.