Federal Reserve Announces Expansion of Eligible Issuers for MLF Program

June 16, 2020

On June 3, 2020, the Federal Reserve Board announced an expansion in the number and type of Eligible Issuers authorized to use the Municipal Lending Facility (MLF) program. Eligible Issuers now include “Designated Cities,” “Designated Counties” and “Designated RBIs.” Under the updated terms, Designated Cities and Designated Counties are cities and counties designated by a governor for participation in the MLF where the state has fewer than two cities and counties with populations exceeding 250,000 residents and 500,000 residents, respectively. 

The FAQ section was updated to include a table, set forth as Appendix A in this announcement, showing the maximum number of Designated Cities and Designated Counties that may be selected by each governor. The numbers set forth in the table are provided to ensure that each state has at least two total cities and counties (on a combined basis) that may participate in the MLF. In situations where the governor is able to name only one Designated City or Designated County, the governor may choose either (i) the most populous city in the state with 250,000 or fewer residents or (ii) the most populous county in the state with 500,000 or fewer residents. In situations where a governor is able to name two Designated Cities and Designated Counties (on a combined basis), the governor may choose: (i) the most populous city and most populous county, (ii) the most populous city and second-most populous city, or (iii) the most populous county and second-most populous county.

Designated RBIs consist of up to two Revenue Bond Issuers designated by a governor for participation in the MLF. A “Revenue Bond Issuer” (RBI) is defined as a state or political subdivision of a state, or a public authority, agency, or instrumentality of such state or political subdivision, that issues bonds payable from revenues of a specified source that is owned by a governmental entity (such as an airport, toll facility, utility or public transit). The mayor of the District of Columbia may name one Designated RBI.

On June 5, 2020, Illinois became the first state to utilize the MLF. In May 2020, Illinois lawmakers considered a budget for the fiscal year starting on July 1, 2020. The state faced a $7 billion combined revenue shortfall for fiscal year 2020 and 2021, largely attributable to the COVID-19 pandemic. To assist in narrowing this gap, the Illinois General Assembly adopted a spending plan that contemplated borrowing up to $4.5 billion from the MLF. On June 5, Illinois issued $1.2 billion in one-year notes to assist in the state’s cash flow until income taxes arrive in late July. The notes will bear interest at a rate of 3.82 percent, based on the MLF program Pricing Index for issuers that are rated BBB-minus and Baa3.

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