Washington, D.C. – U.S. Senator Pat Toomey (R-Pa.), a member of the bipartisan Congressional Oversight Commission, offered the following opening remarks at today’s public hearing examining the Municipal Liquidity Facility established by the CARES Act. Of note, citing the restoration of liquidity in the municipal bond market, Senator Toomey called for the Municipal Liquidity Fund to wind down:
“Thank you, Madam Chair.
“Some who criticize the Municipal Lending Facility may be ignoring its original intended purpose. The CARES Act. was meant to resolve the immediate liquidity crunch and economic shock experienced in March of 2020. The Municipal Lending Facility was not meant to replace private capital markets, be a mechanism to bail out state and local governments, nor to be a substitute for fiscal policy.
“As the name implies and consistent with section 13(3) of the Federal Reserve Act on which the CARES Act was built, the municipal liquidity facility was meant to be a lender of last resort, to stabilize the municipal bond market, and to provide liquidity. These were unprecedented actions, and the economy today is in a very, very different place now than it was six months ago. State and local shortfalls are far less than what was originally projected, the municipal bond markets have recovered, municipal bond issuance is higher – up 21 percent year-over-year through August as opposed to the down 30 percent of March – and importantly, municipal interest rates and spreads have returned to their pre-COVID-19 levels.
“Economic data is coming with greater strength than many have forecast, and using this program to do anything more than what it was intended to do – which was to provide temporary liquidity – would, in my view, be inconsistent with Congressional intent when it passed the CARES Act. Liquidity in the municipal bond market has been restored, and as such, the Municipal Liquidity Fund, in my view, should wind down.”