Section 4003(a) in Title IV of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) provides the much discussed $500 billion “bailout” that will be used under Section 4003(b) to finance (1) finance airlines, (2) cargo air carriers, (3) “national security” businesses, and, (4) Federal Reserve programs to lend to, or otherwise support financing for, large and small businesses and States and municipalities.

Section 4003(b)(4) provides up to $454 billion (plus any unused amounts authorized under Section 4003(b)(1)-(3) for the Treasury to lend, provide loan guarantees, or “other investments” in “programs or facilities” established by the Federal Reserve to provide “liquidity to the financial system that supports lending to eligible businesses, States, or municipalities.” Beyond the language quoted above to provide “liquidity to the financial system that supports lending to States and municipalities,” the CARES Act provides no details for this program.

The Municipal Liquidity Facility

On April 9, 2020, the Federal Reserve announced the new Municipal Liquidity Facility (MLF) aimed at “helping the flow of credit to states, counties and cities impacted by the COVID-19 pandemic.” But the MLF will directly aid only states and large counties and cities (none in Wisconsin). Indeed, only 15 counties and 10 cities meet the Federal Reserve’s parameters for the MLF. At least for now, Wisconsin municipalities and counties must rely on the State to provide support from the MLF.

The term sheet for this facility is here. In summary:

Facility: The MLF will support lending to States and the District of Columbia (together, “States”), cities with a population exceeding one million residents (“Cities”), and counties with a population exceeding two million residents (“Counties”). No Wisconsin city qualifies for direct support under the MLF. Under the MLF, a Federal Reserve Bank (“Reserve Bank”) will commit to lend to a special purpose vehicle (“SPV”). The SPV will purchase Eligible Notes directly from Eligible Issuers at the time of issuance. The SPV will have the ability to purchase up to $500 billion of Eligible Notes.

Eligible Notes: Eligible Notes are tax anticipation notes (TANs), tax and revenue anticipation notes (TRANs), bond anticipation notes (BANs), and other similar short-term notes issued by Eligible Issuers, provided that such notes mature no later than 24 months from the date of issuance.

Eligible Issuer: An Eligible Issuer is a State, City or County (or an instrumentality thereof that issues on behalf of the State, City or County for the purpose of managing its cash flows), in each case subject to review and approval by the Federal Reserve. Only one issuer per State, City or County is eligible.

Limit per State, City and County: The SPV may purchase Eligible Notes issued by or on behalf of a State, City or County in one or more issuances of up to an aggregate amount of 20% of the general revenue from own sources and utility revenue of the applicable State, City or County government for fiscal year 2017. States may request that the SPV purchase Eligible Notes in excess of the applicable limit in order to assist political subdivisions and instrumentalities that are not eligible for the MLF.

Eligible Use of Proceeds: An Eligible Issuer may use the proceeds of Eligible Notes purchased by the SPV to help manage the cash flow impact of income tax deferrals resulting from an extension of an income tax filing deadline; potential reductions of tax and other revenues or increases in expenses related to or resulting from the COVID-19 pandemic; and requirements for the payment of principal and interest on obligations of the relevant State, City or County. An Eligible Issuer may use the proceeds of the notes purchased by the SPV to purchase similar notes issued by, or otherwise to assist, political subdivisions and instrumentalities of the relevant State, City or County for the purposes enumerated in the prior sentence.

Termination Date: The SPV will cease purchasing Eligible Notes on September 30, 2020, unless the Board and the Treasury Department extend the Facility. The Reserve Bank will continue to fund the SPV after such date until the SPV’s underlying assets mature or are sold.


Stafford Rosenbaum LLP will continue to provide information on the MLF as it becomes available. Please contact any member of Stafford Rosenbaum’s government law team with any questions, or call us at 608.256.0226.

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