Bloomberg Businessweek November 23, 2020 pp7 |BLOOMBERG OPINION| “Cities Still Need Their Pandemic Lifeline From the Fed
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Local governments too are being strapped by the economic fallout from COVID-19 due to lower tax revenue and higher costs. After the crisis hit in March borrowing costs for highly rated bonds from large municipalities jumped. Unable to get suitable private investment, the Federal Reserve stepped in, as it did in the 2008 financial crisis, to ensure liquidity by agreeing to buy municipal bonds at more reasonable pre-pandemic yields. While, not a substitute for direct funding, more federal stimulus, that has been delayed due to a stalemate for another round of stimulus, the bond program does provide a lifeline to sustain these entities and avoid layoffs and reducing vital services. So far, this insurance was tapped for only “$1.7 billion of the $500 billion” allocated. With COVID-19 resurgence matters could only get worse for this government entities. The bond provision expires December 31, and while Republicans and the current Treasury Department are opposed, the current POTUS should extend and failing that Biden should pledge to reinstated after January 20. Once the Georgia Senate runoffs are decided the likelihood of an additional stimulus will become more apparent. Less likely but not impossible if the Republicans maintain control of the Senate.