Prod the Federal Reserve to save state and local governments

Many state and local governments have a fiscal year ending this month AND are required to have balanced budgets. This means that a tsunami of government layoffs is about to hit, and drive the entire economy deep into an economic depression. (The layoffs have already started – 1.5 million state and local government employees have been let go in the past two months).

This economic catastrophe will strike in the next few weeks as state and local governments struggle to balance budgets while experiencing an unprecedented collapse in revenues. Many states are reporting an expected drop in tax receipts of as much as 25 percent. County governments are also reporting the same size negative impact on their revenues. With state and local governments accounting for 14 percent of US GDP, we are about to see three to four percent of the national economy wiped out.

The Federal Reserve has the power and authority to head off this catastrophe in one 8 hour workday, as David Dayen explained in “The Federal Reserve Can End the State Fiscal Crisis Today.”  In the CARES Act, Congress authorized the Fed to establish a $500 billion Municipal Lending Fund (MLF). The Fed has used that MLF authority only once – to provide a $1.2 billion loan to the state of Illinois.

Moreover, the Fed can structure the MLF in any way it wants. It can effectively turn all loans to state and local governments into grants by eliminating the interest rate, indefinitely rolling over principal payments, or make them optional; or extend the maturities to 100 or 200 years, or any period selected.

On June 16, 2020  in “Growing Pressure on the Fed to Save State and Local Governments,”  David Dayen described a campaign now underway to create grassroots pressure on the Fed to provide large-scale emergency funding to state and local governments to avert this looming budget catastrophe. This campaign invokes the Federal Reserve’s legal mandate to maximize employment.

“Letters are being distributed among city and state officials right now urging the Fed to either fix the MLF or move to a 14(2) swap line with indefinite rollovers. This is an active and extremely worthy fight. The Fed is designed to protect employment and prevent recessions. State and local funding is the biggest threat out there. The Fed needs to do its job, not trifle with asset inflation.”

The full text of the letter was written by Cornell University Law School professor Robert Hockett, who has served as an adviser to Congresswomen Alexandria Ocasio-Cortez. Hockett’s six-page letter is addressed to Federal Reserve chairman Jerome Powell, and goes into minute detail about the Fed’s authority, how it has structured the Municipal Lending Fund (MLF) so far, and what changes the Fed can make to immediately solve the looming catastrophe to state and local government budgets. Hockett’s letter was printed in full in Forbes magazine on June 14, 2020, as “Optimize Community QE – An Open Letter to Fed Chairman Powell.”

Below is a one page letter and a brief phone script to Fed Chairman Powell, drafted by the Progressive Democrats of Orange County (North Carolina), urging Chairman Powell to immediately implement Hockett’s recommendations.  

There is no email contact for the Fed, so you have to print the letter and mail it. At the very least, call the Federal Reserve and read the script.

You can also contact your regional Federal Reserve Bank. I called and left a message for Federal Reserve Bank of Richmond President Tom Barkin, and he called me back and thanked me late that day. He said he had not seen Hockett’s article, but had found and read it, and thought it important enough he was sending a message to Powell, and also to the New York Federal Reserve, which for the time being is the only Federal Reserve bank that is administering the Municipal Lending Fund (MLF).  (A list of the 12 regional Federal Reserve banks is at the bottom of this post.)

Distribution to elected officials is also strongly recommend including state legislators, county commissioners, city and town mayors, and council members, who should be asked to add their weight to the pressure on the Fed.  

Letter to Federal Reserve Chairman Jerome Powell 

Dear Chairman Powell:

We are writing to request that you move promptly to use the authority given the Federal Reserve by the CARES Act to avert a national economic catastrophe that could occur when the fiscal years of many state and local governments come to an end on June 30, and they are forced to drastically cut services and employment to meet legally-mandated balanced budgets for the upcoming year.

Just in the past two months, state and local governments have dismissed 1.5 million employees. 

As you know, one of the most severe drags on recovery from the 2007-2008 Great Recession, was the budget austerity imposed on state and local governments, which crimped spending and hiring. Under the authority granted by the CARES Act, the Federal Reserve can move immediately to prevent this from happening again, as well as to prevent the present situation from rapidly deteriorating,  

We wish to bring to your attention the letter addressed to you, published on Forbes magazine website June 14, 2020, by Cornell University Law School professor Robert Hockett, “Optimize Community QE – An Open Letter to Fed Chairman Powell.”

Very briefly, Prof. Hockett recommends the Fed extend MLF assistance as widely as possible by

1. Removing bond rating, market rate, and penalty rate requirements from the MLF Term Sheet.
2. “(a) extending Eligible Note maturities and application deadlines, (b) including U.S. Territories and Tribes … and (c) lowering the population thresholds….”
3. Distribute MLF administration over all of the regional Federal Reserve Banks rather than solely in the Federal Reserve Bank of New York.

Prof. Hockett explains each of these points more fully in his “Open Letter to Fed Chairman Powell.” We urge your immediate and careful attention to Professor Hockett’s letter, and the prompt implementation of his recommendations.

Sincerely,

________________________

Suggested Phone Call Script

Hello! This is _____ calling from _____, _____, I want to urge Chairman Powell (or President _______) to use the Federal Reserve’s authority under the CARES Act to lend to state and local governments, which are now in crisis because of the collapse of revenues due to the epidemic and the economic shutdown. As Cornell University law professor Robert Hockett explains in an article on the Forbes magazine website this past week, there are a number of changes the Fed can make to the $500 billion Municipal Lending Fund, to rescue state and local governments and prevent catastrophic damage to the economy.  The article is entitled “Optimize Community Q E – An Open Letter to Fed Chairman Powell.” I request your immediate attention to Professor Hockett’s open letter, and the prompt implementation of Professor Hockett’s recommendations.

OR

Please tell Chairman Powell (or Fed bank president) I request their immediate attention to Professor Hockett’s open letter, and the prompt implementation of Professor Hockett’s recommendations.

CONTACT INFORMATION

Jerome Powell, Chairman
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue N.W.
Washington, DC 20551

General operator: 202-452-3000
Live person will answer and ask who you would like to reach.
Calls to Powell will probably be sent to Fed Public Affairs to leave a message

Members of the Board of Governors of the Federal Reserve

Map of Federal Reserve Districts

Federal Reserve Bank of New York

John C. Williams, President and Chief Executive Officer
33 Liberty Street
New York, NY 10045
General operator: (212) 720-5000.
E-mail: general.info@ny.frb.org

Federal Reserve Bank of Atlanta

Raphael Bostic, President and Chief Executive Officer
1000 Peachtree Street NE
Atlanta, GA 30309
General operator: (404) 498-8500

Federal Reserve Bank of Boston

Eric S. Rosengren, President & Chief Executive Officer
600 Atlantic Avenue
Boston, MA 02210-2204
General operator: 617-973-3000

Federal Reserve Bank of Chicago

Charles Evans, President and Chief Executive Officer
230 S. LaSalle St.
Chicago, IL 60604
General operator: (312) 322-5322

Federal Reserve Bank of Cleveland

Loretta J. Mester, President and Chief Executive Officer
P.O. Box 6387
Cleveland, Ohio 44101-1387
General operator: 216.579.2000

Federal Reserve Bank of Dallas

Robert S. Kaplan, President and Chief Executive Officer
2200 N. Pearl Street
Dallas, Texas 75201
General operator: 214.922.6000

Federal Reserve Bank of Kansas City

Esther L. George, President and Chief Executive Officer
1 Memorial Drive
Kansas City, MO 64198
General operator: (800) 333-1010

Federal Reserve Bank of Minneapolis

Neel Kashkari, President and Chief Executive Officer
90 Hennepin Avenue
Minneapolis, MN 55401
General operator: 612-204-5000

Federal Reserve Bank of Philadelphia

Patrick T. Harker, President and Chief Executive Officer
Ten Independence Mall
Philadelphia, PA 19106-1574
General operator: (215) 574-6000
phil.webmaster@phil.frb.org

Federal Reserve Bank of Richmond

Tom Barkin, President and Chief Executive Officer
Federal Reserve Bank of Richmond
Post Office Box 27622
Richmond, VA 23261

General operator: 804-697-8000
Dial 1 (one) to request by name
Say “Tom Barkin” when prompted
Confirm “Yes” when asked if you want to reach Barkin

Contact info for Federal Reserve Bank of Richmond
Board members of Federal Reserve Bank of Richmond

Federal Reserve Bank of San Francisco

Mary C. Daly, President and Chief Executive Officer
101 Market Street
San Francisco, CA 94105
General operator: (800) 227-4133 or (415) 974-2000

Federal Reserve Bank of St. Louis

James Bullard, President and Chief Executive Officer
P.O. Box 442
St. Louis, MO 63166‑0442
General operator: 314‑444‑8444