Treasury Department

The Federal Reserve said Friday it would comply with a Treasury Department request to return unused funds meant to backstop five emergency lending programs, moving to tamp down a public rift that arose a day earlier.

Analysts, issuers and lawmakers have mixed responses to the closure of the Municipal Liquidity Facility with some saying the move puts the municipal market in a precarious spot as COVID-19 continues to ravage the country.

Treasury Secretary Steve Mnuchin told Fed Chair Jerome Powell to end most emergency lending programs created earlier this year, including the MLF, on Dec. 31.

The Fed’s vice chair of supervision said the Fed's backstop lending to states and localities "may not be the answer to all their issues."

The American Securities Association wants to see a municipal debt purchase program extended past the end of the year, but Treasury has indicated that is unlikely.

Groups say they're frustrated by the federal governments' inaction.

The U.S. Treasury expanded its plans for the issuance of longer-term debt in coming months, after depending mainly on shorter-dated bills to fund the federal government’s record spending surge to address the COVID-19 crisis.

The bond lawyer group's No. 1 suggestion is to loosen the rules governing state and local government borrowing for working capital.

Despite changes made to the Fed's Municipal Liquidity Facility, lawmakers say smaller communities in populous states are left out.

The Financial Stability Board issued a statement April 2 affirming that it is sticking with plans to transition away from Libor by the end of 2021.

Issuers say the Treasury's intent was to open up COVID-19 funds for public safety costs.

The IRS also announced temporary guidance providing relief for the calendar year 2020 regarding the reacquisition of qualified tender bonds and commercial paper.

Economists also expect the Fed's balance sheet to more than $10 trillion as policymakers look to lift the country from a recession brought on by the coronavirus pandemic.

In a letter, three issuer groups made specific recommendations to the Federal Reserve and Treasury.

The National Association of Bond Lawyers wants Treasury to fill the position formerly held by John Cross III.

Members of GFOA’s Debt Committee agreed Monday to form a working committee that will publicize the issues involved in the transition among the organization’s more than 21,000 members.

The new alternative reference rates cited by Treasury and the IRS include the Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York and the Federal Funds Rate.

In formal comments filed with the federal government and separately to GASB, municipal finance groups have given the regulators generally high marks.

In 2012 John Cross became the first person to head the independent Office of Municipal Securities at the U.S. Securities and Exchange Commission.

Cross, who served as associate tax legislative counsel at the Office of Tax Policy until Friday, said that he resigned in order to be closer to family.