If you were chewing your fingernails and feeling generally bummed over the weekend about the fiscal relief talks, there’s now a deal. And it’s not great for the policy possibility I’ve been writing about.
Yesterday Sen. Pat Toomey did some politics. He said he wouldn’t vote for the relief package unless the Fed closed its lending facilities and wasn’t allowed to do anything similar to them. This includes the Municipal Liquidity Facility, which I’ve been looking at as a possible avenue for school infrastructure funding in Philadelphia.
As part of a deal with Democrats, Toomey forced the programs closed and tried to salt the earth so nothing like them ever grows again. I haven’t seen the exact language of the bill, but here’s Toomey doing a victory dance:
Toomey…said the agreement will close four Fed credit lending facilities funded by the CARES Act: the Primary Market Corporate Credit Facility, the Secondary Market Corporate Credit Facility, the Main Street Lending Program and the Municipal Credit Facility.
Toomey said the deal achieved his four goals: to sweep out $429 billion in unused CARES Act funds allocated for Fed lending and repurpose the money, to shut down the four lending facilities, to forbid the reopening of those facilities, and to ban future clones of the program.
I’ll do some further looking into the situation, but Toomey in unequivocal: the facilities will be shut down on Dec. 31. They are forbidden from being opened again. Any clone programs are banned.
It’s worth noting that Toomey was on the oversight committee for the MLF. He’s been a proponent of the ‘free market’ or conservative interpretation of the facilities, which is that they’re supposed to be a safety net for private lending markets, whereas the progressive interpretation was that the facilities not merely backstop private lenders but that they provide direct liquidity to local governments.
Toomey dismissed the progressive interpretation:
"These facilities were put in place for a specific purpose. The purpose was to restore the normal functioning of the private lending and capital markets, not as a general all-purpose salve, fix-all for the economy," he said.
The thing is, we need a salve. The private lending markets aren’t doing anything about school infrastructure in Philly. We need this, but Toomey says no and that’s that.
Something interesting: Toomey didn’t get a complete win. The sticking point in the negotiations, apparently, was Toomey’s demand to ban programs ‘similar’ to the current facilities. Democrats pushed him back to ‘clones’, meaning that in principle the Fed could do something similar if need.
The Democrats’ position on this negotiation is that they won the ability to set something similar up if the need arises. But the language in this bill means there’d at least be a debate about the Fed’s legal authority to do something like this again under section 13(3) of the Federal Reserve Act.
Another silver lining in all this is that one of the chief proponents of the progressive interpretation of the MLF was Bharat Rammamurti, and he’s now an economic adviser in the Biden administration. Perhaps he could be moved to think creatively about liquidity for school districts like Philadelphia, who have so much need and so few options for revenue.
Toomey on the other hand is crawling back into some expensive private sector hole, having conspicuously announced that he won’t run for any offices in the next cycle.
If I’m being optimistic, he won the battle but not the war.