Federal Reserve Bank Revises Guidelines for Municipal Liquidity Facility Program


Pursuant to Section 4027 of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), the Federal Reserve established the Municipal Liquidity Facility program (the “MLF Program”) to help eligible state and local governments better manage cash flow attributable to the COVID-19 crisis through the purchase of eligible short-term notes. To provide guidance regarding the implementation of the MLF Program, the Federal Reserve published initial guidelines on April 9, 2020, which were subsequently updated on April 27, 2020.

One notable change under the updated guidelines is the expanded definition of “Eligible Issuer,” which now encompasses midsize U.S. cities and counties and will permit a number of Ohio cities and counties to directly participate in the MLF Program.

Eligible Issuers 

Under the initial guidelines, Eligible Issuers were limited to U.S. cities with a population greater than 1 million residents and U.S. counties with a population greater than 2 million residents. This initial definition of Eligible Issuer precluded any Ohio city or county from directly participating in the MLF Program.

Under the updated guidelines, the definition of Eligible Issuer is expanded to include counties with a population exceeding 500,000 residents and cities with a population exceeding 250,000 residents. Accordingly, the following Ohio cities and counties are Eligible Issuers under the MLF Program:

  • Cincinnati
  • Cleveland
  • Columbus
  • Cuyahoga County
  • Franklin County
  • Hamilton County
  • Montgomery County
  • Summit County
  • Toledo

In addition to minimum population requirements, the updated guidelines also have minimum credit rating requirements for Eligible Issuers.

Eligible Notes

Eligible notes under the MLF Program include tax anticipation notes, tax and revenue anticipation notes, bond anticipation notes and other short-term notes with a maturity no later than 24 months from the date of issuance (“Eligible Notes”). The updated guidelines also provide details regarding pricing and fees related to issuing Eligible Notes.

Eligible Use of Proceeds

An Eligible Issuer may use the proceeds derived from the sale of Eligible Notes for the following purposes:

  1. To help manage the cash flow effects of:
    1. income tax deferrals resulting from an extension of an income tax filing deadline;
    2. deferrals or reductions of tax and other revenues or increases in expenses related to or resulting from the COVID-19 pandemic; and
    3. requirements for the payment of principal and interest on obligations of the Eligible Issuer or its political subdivisions or other governmental entities;
  2. To purchase similar notes issued by, or otherwise to assist, its political subdivisions and other governmental entities for eligible uses; and
  3. To fund the costs of issuing the notes under the MLF Program and paying the origination fee attributable to the issuance of Eligible Notes.

Item 2 above ensures that smaller jurisdictions that do not otherwise qualify as Eligible Issuers can gain access to liquidity through the sale of Eligible Notes.

Termination Date

Unless extended pursuant to subsequent guidelines, the termination date for the purchase of Eligible Notes under the MLF Program will be December 31, 2020.

Calfee attorneys stand ready to assist local government clients with navigating their options under the MLF Program.

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