N.J. treasurer: Mnuchin’s clawback of federal funds could have devastating consequences | Opinion

Posted Dec 11, 2020

By Elizabeth Maher Muoio

U.S. Treasury Secretary Steven Mnuchin’s recent decision not to extend a valuable lifeline to states that's currently available under the CARES Act could have a devastating impact on other states during the economic crisis. 


The COVID-19 pandemic is not only a health crisis of dire proportions, it has also created a fiscal crisis that has local communities, states and nations struggling to respond to the desperate needs of their citizens. The federal CARES Act approved in the early days of the pandemic provided states and local governments with crucial financial support to help us fund many COVID-related costs.

Unfortunately, U.S. Treasury Secretary Steven Mnuchin’s recent decision not to extend a valuable lifeline currently available under the CARES Act to aid state and local governments — a lifeline that proved beneficial to New Jersey in our recent bond issuance — will critically limit funding options and could have a devastating impact for other states and governmental entities as revenues plummet due to the crisis.

This crucial tool, known as the Federal Reserve’s Municipal Liquidity Facility (MLF), provided for the purchase of up to $500 billion in short term notes at favorable rates ‘to help state and local governments better manage cash flow pressures to continue to serve households and businesses in their communities.

Absent the additional, flexible, direct federal cash assistance that New Jersey Gov. Phil Murphy and others have been advocating for, the MLF serves two important roles: it provides access to resources to help governments meet their emergent needs and it provides a confidence-inducing backstop, signaling to municipal lenders that it is safe to offer credit at favorable rates.

New Jersey knows this better than most. On the same day that Secretary Mnuchin announced his refusal to extend the deadline for this emergency lending program, the State of New Jersey finalized the issuance of General Obligation bonds authorized under the state’s COVID-19 Emergency Borrowing Act, an issuance that will produce $4.28 billion in total proceeds.

These bonds were sold tax-exempt in the capital market and the transaction was significantly oversubscribed, yielding us a final True Interest Cost of less than 1.95%. While we ultimately did not need to use the MLF, the facility’s presence served to stabilize the municipal market in the months leading up to New Jersey’s bond sale, allowing us to obtain the extremely favorable rates we received. As a recent Bloomberg editorial noted, ‘the fact that the Fed’s facilities have gone largely unused is a sign that they’re doing their job, providing the confidence needed for markets to operate on their own.’

Like our fellow states, New Jersey’s economy has been battered by this pandemic. These sorely needed funds were sought by Governor Murphy and the Legislature to help avoid drastic cuts in state services at a time when our residents need the services the most.

Secretary Mnuchin’s decision to shut down the MLF, just as states are reeling from the effects of the latest pandemic surge is dangerously shortsighted. I urge the secretary to reverse course and extend — and ideally strengthen — these critical emergency loan programs so as not to hamper our ability to safely emerge from the dire fiscal effects of this crisis.

Elizabeth Maher Muoio is New Jersey’s state treasurer and a former member of the New Jersey State Assembly.

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published this page in News and Politics 2020-12-12 03:34:58 -0800