Dear PDOC member – Please see Action at the end of this post.
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,” 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, urging Chairman Powell to immediately implement Hockett’s recommendations.
We are asking you to forward it to Fed Chairman Powell, and to Federal Reserve Bank of Richmond President and Chief Executive Officer Tom Barkin. (The Federal Reserve Bank of Richmond is one of the 12 regional Federal Reserve banks and covers the state of North Carolina.)
We also strongly recommend its distribution to elected officials including state legislators, county commissioners, city and town mayors, and council members.
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
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
Letter to Federal Reserve Chairman Jerome Powell and
Federal Reserve Bank of Richmond President and CEO Tom Barkin
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
- Removing bond rating, market rate, and penalty rate requirements from the MLF Term Sheet.
- “(a) extending Eligible Note maturities and application deadlines, (b) including U.S. Territories and Tribes … and (c) lowering the population thresholds….”
- 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.
Progressive Democrats of Orange County
Chapel Hill, NC
Suggested Phone Call Script:
Hello! This is _____ calling from _____, _____, I want to urge Chairman Powell (or President Barkin) 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.
Please tell Chairman Powell (or President Barkin) I request their immediate attention to Professor Hockett’s open letter, and the prompt implementation of Professor Hockett’s recommendations.