Late yesterday, the Michigan Department of Treasury circulated the following email to local units of government requesting feedback on potential cash flow concerns local governments may be anticipating based upon current state and local economic conditions.
The Michigan Finance Authority (MFA) provides effective, low-cost options for financing to municipalities. MFA is currently exploring possibilities to assist local governments that might need to access cash due to declining revenues during the current state of emergency, related to COVID-19. We are trying to determine if there is interest in a statewide pool of tax anticipation notes to provide near term cash flow for participants.
The program would be offered through the Local Government Loan Program and we are looking for feedback on or before May 1, 2020. If you believe your local government may be interested in participating, please e-mail your anticipated cash flow needs from May through October to [email protected]. This will help us gauge the level of interest and the potential size of borrowing. MFA staff will then contact you to discuss your specific needs based on your response.
For more information on the Michigan Finance Authority please visit: https://www.michigan.gov/treasury/0,4679,7-121-1753_55952—,00.html
For more information on the Local Government Loan Program please visit:
Along these same lines, the Federal Reserve announced the creation of the new Municipal Liquidity Facility. This new entity was authorized under the recent federal stimulus efforts and will allow the Fed to purchase up to $500B in short term notes directly from states. States are then allowed to use those proceeds to support additional counties and cities within that state.
According to guidance published by the Federal Reserve:
An Eligible Issuer may use the proceeds of Eligible Notes purchased by the SPV to help manage the cash flow impact of income tax deferrals resulting from an extension of an income tax filing deadline; potential reductions of tax and other revenues or increases in expenses related to or resulting from the COVID-19 pandemic; and requirements for the payment of principal and interest on obligations of the relevant State, City, or County. An Eligible Issuer may use the proceeds of the notes purchased by the SPV to purchase similar notes issued by, or otherwise to assist, political subdivisions and instrumentalities of the relevant State, City, or County for the purposes enumerated in the prior sentence.
League members are encouraged to respond to the MI Department of Treasury survey so that the Administration can have a clear picture of the budget impacts local units of government are facing.
Chris Hackbarth is the League’s director of state & federal affairs. He can be reached at 517-908-0304 and [email protected].