I was feeling pretty bummed last week. Pat Toomey all but doomed the municipal liquidity facility (MLF) as part of his demands to sign off on the CASH act, which Trump has just signed into law.
But a couple things I read today are giving me more hope, optimism, and even ideas.
Where we’re at
To recap, I’ve been researching and organizing around the possibility of school districts taking advantage of the Federal Reserve’s MLF to get out of the dead end of school funding inequality.
For me, Philly is the case in point: K-12 schools here need $4.5 billion of infrastructure updates.
Old buildings were killing and endangering people in Philly before the pandemic. Now good ventilation is a necessity for reopening as we battle covid. But there’s no room in the city budget for these infrastructure improvements, insufficient help from the state and federal governments, and no other avenues for financing.
Think of how great it’d be for this city to get a big, low-cost loan to pay back over a long period that would create thousands of green jobs and lower our buildings’ emissions, save kids’ and teachers’ lives, and infuse a much needed sense of hope in a struggling district?
And how many other districts need the same opportunity, both urban and rural?
And what about the harsh reality of public university funding post-pandemic? They’re already having to take themselves to the cattle auction for loans in droves.
I was excited. So were a lot of people. The Action Center for Race and the Economy opened up a national campaign to push for better MLF terms. Progressives and even some centrists were calling for better terms as well, going so far as to write it in to the HEROES act. Then Toomey came along and shat on the dream.
But there’s some conversation happening that maybe wipes some Toomey crap off this vision.
It’s still bad
First, some context. The WSJ reports that muni markets aren’t out of the woods. A lot of state governments are projected to have significant revenue losses in the coming fiscal year, and in the horse trading around the CASH Act aid to states and local governments got taken out.
That’s two thirds of the $4 trillion muni bond market still at risk. The other third of that market comes from revenue bonds backed by assets beyond general tax fund revenues. While some revenue bonds are okay (like ones backed by tobacco?!), others are in trouble, like airports.
So the need for creative monetary policy is far from over. Even if everything works out with the vaccine, the economic crisis wrought by a year of shutdowns will have lasting effects on government budgets.
Remember Illinois? They did one of two bond deals with the MLF. That state government recently did another $2 billion loan to cover shortfalls and the Fed even lowered spreads to accommodate them.
Biden our time?
Don’t forget we’ve got an ideologically squishy administration coming in with a mixed mandate. Biden’s a neoliberal and so are most of his appointees. But Janet Yellen is no Steve Mnuchin, and she worked closely with Jerome Powell as chair of the Fed under Obama. And Biden recently appointed Bharat Ramammurti, one of the progressive champions of better terms for the MLF.
So there will most likely be sympathetic ears at the highest levels.
Next, think about the actual legal logistics of enforcing Toomey’s language in the CASH act. As Nathan Tankus points out, anyone who brings that case to court won’t have standing. Who’s to stop the Fed from continuing down the path Powell has set out? What would that even look like legally speaking?
In any case, all that’s needed is a ‘similar’ program. And that’s where I had an idea.
We need an Education Liquidity Facility!
Schools from pre-kindergarten to graduate school are facing budget crunches. They need help. States won’t increase taxes due to political and ideological logjams. That leaves loans as their only option to weather the budgetary storm ahead.
Open an ELF. Let districts and state programs and universities issue bonds. Make the terms generous and viable. Tie the rates to the ten year treasury. Give them 100 years to pay the loans back. (The Modern Monetary Network has already called for something close to this in their Uni proposal.)
Students before bondholders!