The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
S. HRG. 116–1 EXAMINATION OF THE MUNICIPAL LIQUIDITY FACILITY ESTABLISHED BY THE FEDERAL RESERVE PURSUANT TO THE CARES ACT HEARING BEFORE THE CONGRESSIONAL OVERSIGHT COMMISSION ONE HUNDRED SIXTEENTH CONGRESS SECOND SESSION ON EXAMINING THE MUNICIPAL LIQUIDITY FACILITY CREATED BY THE FEDERAL RESERVE, PURSUANT TO THE CARES ACT SEPTEMBER 17, 2020 Serial No. 116–1 ( Printed for the use of the Congressional Oversight Commission Available at: https://www.govinfo.gov/ U.S. GOVERNMENT PUBLISHING OFFICE WASHINGTON dkrause on LAP5T8D0R2PROD with $$_JOB 41–489 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00001 Fmt 5011 : 2022 Sfmt 5011 C:\41489\41489.XXX 41489 CONGRESSIONAL OVERSIGHT COMMISSION FRENCH HILL, Representative BHARAT RAMAMURTI, Commissioner DONNA E. SHALALA, Representative PATRICK J. TOOMEY, Senator dkrause on LAP5T8D0R2PROD with $$_JOB AMBER VENZON, Chief Clerk (II) VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 C:\41489\41489.XXX 41489 CONTENTS STATEMENTS OF COMMISSION MEMBERS Page Hill, Hon. J. French, a Representative in Congress from the State of Arkansas .......................................................................................................................... Ramamurti, Bharat, an American attorney and political advisor ....................... Shalala, Hon. Donna E., a Representative in Congress from the State of Florida ................................................................................................................... Toomey, Patrick J., a U.S. Senator from the State of Pennsylvania ................... 4 4 1 3 WITNESSES Edwards, Chris, Director, Tax Policy Studies, Cato Institute ............................. Gee, Marion, President, Government Finance Officers Association, and Finance Director, Metropolitan St. Louis Sewer District, Missouri .................... Hiteshew, Kent, Deputy Associate Director, Division of Financial Stability, Board of Governors of the Federal Reserve System .......................................... McCoy, Patrick, Director of Finance, Metropolitan Transportation Authority .. Zandi, Mark, Ph.D., Chief Economist, Moody’s Analytics .................................... 44 35 5 28 55 QUESTIONS AND ANSWERS Questions for the Record submitted to U.S. Treasury from the Congressional Oversight Commission ......................................................................................... Questions for the Record submitted to U.S. Treasury from Commissioner Bharat Ramamurti and Congresswoman Donna E. Shalala ............................ Questions for the Record submitted to U.S. Treasury from Commissioner Bharat Ramamurti ............................................................................................... Question for the Record submitted to U.S. Treasury from Senator Pat Toomey .................................................................................................................. Department of the Treasury responses to questions from the Congressional Oversight Commission regarding the Municipal Liquidity Facility ................ Department of the Treasury responses to questions from Commissioner Bharat Ramamurti and Congresswoman Donna E. Shalala ............................ Department of the Treasury responses to questions from Commissioner Bharat Ramamurti ............................................................................................... Department of the Treasury response to question from Senator Pat Toomey ... 81 81 83 83 85 85 88 89 SUBMISSIONS FOR THE RECORD dkrause on LAP5T8D0R2PROD with $$_JOB Henry C. Levy, Treasurer-Tax Collector, Alameda County Office of the Treasurer and Tax Collector, Oakland, California, Letter ......................................... Hill, Hon. J. French, a Representative in Congress from the State of Arkansas, graphic ........................................................................................................... National Association of Counties (NACo), Washington, D.C., statement ........... Valerie Ramey, University of California, San Diego (UCSD), Department of Economics, letter .............................................................................................. (III) VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00003 Fmt 5904 Sfmt 0486 C:\41489\41489.XXX 41489 26 69 90 76 dkrause on LAP5T8D0R2PROD with $$_JOB VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00004 Fmt 5904 Sfmt 0486 C:\41489\41489.XXX 41489 EXAMINATION OF THE MUNICIPAL LIQUIDITY FACILITY ESTABLISHED BY THE FEDERAL RESERVE PURSUANT TO THE CARES ACT THURSDAY, SEPTEMBER 17, 2020 CONGRESSIONAL OVERSIGHT COMMISSION, Washington, D.C. The Commission met, pursuant to notice, at 10:02 a.m., in Room SD–215, Dirksen Senate Office Building, and via Webex, Hon. Donna Shalala, Acting Chairman, presiding. Present: Representative Shalala, Mr. Ramamurti, Representative Hill, and Senator Toomey. OPENING STATEMENT OF MS. SHALALA dkrause on LAP5T8D0R2PROD with $$_JOB Ms. SHALALA. This hearing will come to order. This is a hybrid hearing, meaning that our Commissioners are appearing in person and witnesses will testify remotely. Before I begin introducing our witnesses, let me first offer a few videoconferencing reminders. Once you start speaking, there will be a slight delay before you are displayed on the screen. To minimize background noise, please click the ‘‘Mute’’ button until it is your turn to speak or ask questions. If there is a technology issue, we will move to the next speaker until it is resolved. You should all have one box on your screens labeled ‘‘Clock’’ that will show how much time is remaining. All Members and witnesses need to be especially mindful of the 5-minute clock. At 30 seconds remaining, I will gently tap the gavel to remind Members that their time has almost expired. With that, today we welcome you to this hearing convened by the Congressional Oversight Commission. The Commission’s role is to conduct oversight of the implementation of Division A, Title IV, Subtitle A of the CARES Act by the Department of the Treasury and the Board of Governors of the Federal Reserve System. Subtitle A provides $500 billion to the Treasury Department for lending and other investments to, I quote, ‘‘provide liquidity to eligible businesses, States, and municipalities related to losses incurred as a result of the coronavirus.’’ As part of our oversight work, the Commission has decided to hold this hearing today, which will examine the Municipal Liquidity Facility. The Federal Reserve established the Municipal Liquidity Facility to provide up to $500 billion in lending to State and local governments and other municipal issuing authorities. Today’s hearing will have two panels. (1) VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 2 Mr. Kent Hiteshew, Deputy Associate Director of the Division of Financial Stability of the Federal Reserve Bank of New York, will testify during the first panel. Mr. Hiteshew also previously served as the first Director of the Office of State and Local Finance at the U.S. Department of the Treasury. Prior to his time at Treasury, Mr. Hiteshew was a public finance banker with JPMorgan and its predecessor firm Bear Stearns. Mr. Hiteshew is a graduate of Rutgers and earned his Master’s in City Planning from the University of North Carolina, Chapel Hill. In the second panel, we will hear testimony from Mr. Patrick McCoy, who is Director of Finance at the Metropolitan Transportation Authority in New York. Mr. McCoy has also previously served as the Executive Director of the New York City Municipal Water Finance Authority, the Executive Director of New York Water, and the Deputy Director of Finance for the MTA. Mr. McCoy earned his Master’s degree in Urban Policy Analysis and Management from the New School in New York and has a B.A. from St. Ambrose University. Mr. Marion Gee is President of the Government Finance Officers Association. In addition, Mr. Gee has served as the Finance Director of the Metropolitan St. Louis Sewer District since September of 2015. Previously, Mr. Gee was the Assistant Finance Director for the city of San Antonio for 4 years. Prior to joining the city of San Antonio, he was employed as Finance Director of the Louisville Metropolitan Sewer District for 11 years. Mr. Gee is a certified public accountant, earned his Master’s in Business Administration and his Bachelor’s of Science in Business Administration from the University of Louisville. Mr. Chris Edwards is the Director of Tax Policy Studies at the Cato Institute. Before joining Cato, Mr. Edwards served as a Senior Economist on Congress’ Joint Economic Committee. Prior to his time at the JEC, Mr. Edwards was a manager with PricewaterhouseCoopers and an economist with the Tax Foundation. He has authored ‘‘Downsizing the Federal Government’’ and is co-author of ‘‘Global Tax Revolution.’’ Mr. Edwards is a graduate of the University of Waterloo and holds a Master’s in Economics from George Mason University. Dr. Mark Zandi is the Chief Economist at Moody’s Analytics. Dr. Zandi is on the board of directors of the Mortgage Guaranty Insurance Corporation and serves as the lead director of the Reinvestment Fund, which makes investments in underserved communities. Dr. Zandi is the co-founder of Economy.com, which provides economic analysis data and forecasting, credit risk services, and research on countries, industries, and economies. Dr. Zandi is also the author of ‘‘Paying the Price: Ending the Great Recession and Beginning a New American Century’’ and ‘‘Financial Shock.’’ Dr. Zandi is a graduate of the Wharton School of the University of Pennsylvania and earned his Ph.D. at the University of Pennsylvania. We are fortunate to have these five witnesses appearing today and appreciate their time. The Commission would like to note for the record that it also invited the Treasury Department to participate in the hearing, but the Treasury Department declined. VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\41489\41489.XXX 41489 3 In the absence of a Chair, the Commissioners have agreed to each have 1 minute of opening remarks. I will now recognize myself for an opening statement. It is no secret that State and local governments are struggling to deal with the economic fallout of COVID–19. They have already cut 1.1 million jobs. The city of Miami in my district, Florida’s 27th, has an estimated budget shortfall of nearly $25 million, and the pandemic is not even over yet. Miamians did not cause this problem. We were actually very prudent. We saved and we went into the pandemic with a $20 million surplus. COVID–19 wiped that out, and now we face a huge deficit. South Florida’s economy relies on tourist dollars, but the tourism industry has been decimated. And while our revenues are down, our expenses are up. We need to pay for PPE to protect our first responders and update school programs to keep our children safe. This problem is not unique to Miami. It is happening all across the country. The Municipal Liquidity Facility can support $500 billion in lending, but to date only $1.65 billion, less than 1 percent, is being used. I hope we come up with solutions today to get State and local governments the support they need and their residents desperately need. I yield back. I yield to Senator Toomey. dkrause on LAP5T8D0R2PROD with $$_JOB OPENING STATEMENT OF SENATOR TOOMEY Senator TOOMEY. Thank you, Madam Chair. Let me just say, some who criticize the Municipal Liquidity 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 Liquidity 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 6 months ago. State and local revenue 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 in with greater strength than many had 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 MLF, in my view, should wind down. Ms. SHALALA. Thank you, Senator Toomey. I now recognize Mr. Ramamurti for 1 minute. VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\41489\41489.XXX 41489 4 OPENING STATEMENT OF MR. RAMAMURTI Mr. RAMAMURTI. Thank you, Madam Chairwoman. In the 6 months since Congress authorized the Treasury and the Fed to offer loans to State and local governments, they have provided two loans for a total of $1.65 billion. That is 0.3 percent of the $500 billion lending capacity of the program. State and local governments are desperate for help, but the loans offered by this Administration are so punitive that even governments in deep trouble cannot justify using them. Yet, at the same time, the Treasury and the Fed are offering much more generous no-strings-attached support to many of America’s biggest and most profitable corporations. It is a shameful disparity that reflects this Administration’s priorities, taking care of big-time executives and wealthy shareholders while abandoning emergency responders, teachers, firefighters, nurses, and all the people who count on their help; and it will further widen the racial income and wealth gaps in this country. Congress needs to provide direct aid to State and local governments immediately, but if Republicans continue to stonewall direct aid, the Fed and the Treasury should offer much more generous loans so that State and local governments can help families, protect jobs, and support our economy. Thank you, Madam Chair. Ms. SHALALA. Thank you. Commissioner Hill. dkrause on LAP5T8D0R2PROD with $$_JOB OPENING STATEMENT OF MR. HILL Mr. HILL. Thank you, Madam Chair, and thank you to our witnesses for providing your expertise today. Today we are discussing the Municipal Liquidity Facility. This continues to be a heated topic on Capitol Hill as State and local municipalities determine how best to balance their budgets and fight COVID–19. Last week, in the House Financial Services Committee we held a hearing precisely on this issue. This challenge varies widely across the Nation. During the hearing last week, I highlighted that the number of COVID cases per State does not correlate with how an individual State’s economy is actually faring. For example, Arkansas and New York are ranked very similarly in the number of COVID–19 cases per capita, but sales tax revenue in my home State of Arkansas is up substantially while down in New York. I will discuss this in more detail. Ultimately, we need to ensure that our communities can reopen in a safe and secure manner and rebuild our great economy that we experienced at the beginning of this fateful year. Thank you, Madam Chair, and I yield back. Ms. SHALALA. Thank you, Congressman Hill. All Members’ statements will be added to the hearing record. Each of the witnesses’ full written testimony will also be made part of the official hearing record. To allow the Members enough time for questions with each witness, we have organized today’s hearing into two panels. Mr. Hiteshew of the Federal Reserve will testify in the first panel, and VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 C:\41489\41489.XXX 41489 5 Mr. McCoy, Mr. Gee, Mr. Edwards, and Dr. Zandi will testify in the second panel. We will now proceed with the first panel and hear Mr. Hiteshew’s testimony. At the end of his testimony we will move to two rounds of 5-minute questioning. Mr. Hiteshew, welcome. You are now recognized for 5 minutes. dkrause on LAP5T8D0R2PROD with $$_JOB STATEMENT OF KENT HITESHEW, DEPUTY ASSOCIATE DIRECTOR, DIVISION OF FINANCIAL STABILITY, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Mr. HITESHEW. Good morning, Madam Chair, Representative Hill, Commissioner Ramamurti, and Senator Toomey. Thank you for the opportunity to speak with you about the Federal Reserve’s Municipal Liquidity Facility. I am very pleased to provide information that I hope will be useful to your important oversight work. At the outset of the COVID pandemic in mid-March, the $3.9 trillion municipal bond market experienced historic levels of turmoil. Market conditions unprecedented—far worse than during the onset of the financial crisis in late 2008 or even in the days after 9/11, when the municipal market was briefly closed. Interest rates soared more than 225 basis points in just 9 trading days, mutual fund investors pulled over $41 billion of assets out of the market in less than 3 weeks, and market functioning deteriorated to the point that buyers and sellers had difficulty even determining prices. Ultimately, this meant that State and local governments were effectively unable to borrow, with new issues canceled for lack of investor demand. Recognizing the severity of this market dislocation, the Federal Reserve quickly moved to use its authorities to directly support the municipal markets for the first time in its 100-year history. First, the inclusion of municipal variable rate demand notes as eligible collateral in the Money Market Liquidity Fund on March 23 had an immediate and dramatic downward impact on shortterm municipal rates, providing both significant interest cost relief to State and local budgets and increased liquidity to the larger fixed-rate municipal market. Next, on April 9, the Fed, with the approval of the Treasury, announced the MLF would help State and local governments better manage the extraordinary cash flow pressures associated with the pandemic—caused by both higher expenses of fighting COVID on the front lines and sharply delayed and lower tax revenues from the resulting economic recession. The facility backstops private market capacity to address these liquidity needs by standing ready to purchase the short-term notes often used by State and local governments to manage their cash flows. By addressing the cash management needs of eligible issuers, the MLF was also intended to encourage private investors to reengage in the municipal securities market, thus supporting overall municipal market functioning. With nearly 20 million employees—that is 13 percent of all employees in the Nation—and the responsibility for delivering essential services to their constituents, the fiscal stability of State and local governments is a crucial component of the Nation’s overall economic health and its recovery. As of August 31, the facility had VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 C:\41489\41489.XXX 41489 6 dkrause on LAP5T8D0R2PROD with $$_JOB purchased two issues for a total outstanding amount of $1.65 billion. Consistent with the Fed’s Section 13(3) authority, our mandate is to serve as a backstop lender to accomplish these objectives—not as a first stop that replaces private capital. Accordingly, we have established MLF pricing based on a rate that is a premium to normal market conditions as measured over an extended period prior to the pandemic, but at a discount to stress conditions in March. We are also required to protect the taxpayer against loss. We cannot make grants or forgivable loans, and we cannot lend to insolvent or highly distressed entities. Therefore, we measure the success of the MLF based not on its volume of lending but, rather, on the condition of the municipal securities market and State and local government access to capital. By these measures, the MLF has contributed to a strong and rapid recovery in the municipal securities markets. State and local governments and other municipal bond issuers of a wide spectrum of types, sizes, and credit ratings have been able to issue securities, including long maturity bonds, with interest rates that are at or near historic lows. Many State and local governments have taken advantage of these low rates to refinance their outstanding debt for substantial debt service savings, with a resulting record issuance of $225 billion of bonds since April 1. And those municipal issuers that do not have direct access to the MLF have still benefited substantially from this better-functioning municipal market. Of course, the Federal Reserve continues to closely monitor the municipal markets and State and local government borrowing conditions and their access to capital, and we remain vigilant to any dislocated conditions. We look forward to answering your questions today, and I thank you very much for this opportunity. [The prepared statement of Mr. Hiteshew follows:] VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 C:\41489\41489.XXX 41489 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00011 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.001 dkrause on LAP5T8D0R2PROD with $$_JOB 7 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00012 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.002 dkrause on LAP5T8D0R2PROD with $$_JOB 8 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00013 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.003 dkrause on LAP5T8D0R2PROD with $$_JOB 9 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00014 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.004 dkrause on LAP5T8D0R2PROD with $$_JOB 10 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00015 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.005 dkrause on LAP5T8D0R2PROD with $$_JOB 11 dkrause on LAP5T8D0R2PROD with $$_JOB 12 Ms. SHALALA. Thank you very much. As I mentioned in my opening remarks, the Municipal Liquidity Facility can support up to $500 billion in lending. However, thus far, only two issuers have borrowed a combined total of $1.65 billion, which represents less than 1 percent of the facility’s total capacity. Does the facility’s non-use indicate a design flaw of the program? Mr. HITESHEW. Thank you for that question, Madam Chair. We do not think so. This is the first time that the Fed has intervened in the municipal market. It is a complex market made up of 50,000 unique issuers of various sizes, types, purposes, and credit ratings, as I mentioned. We had to undertake very quickly to enter into the market, and our four principles that were guiding us in terms of our design were: speed to announcement and execution, do not let the perfect be the enemy of the good; ensure that State and local governments had access to liquidity for operating cash—this is what we heard overwhelmingly from individual issuers and associations like GFOA; restore market confidence and stability given the unprecedented liquidity crisis in the market; and, finally, to your point, to design a uniformly applicable, transparent, and easy-to-administer facility. We started out on April 9 with the core program announcement. We made several changes along the way. As the Chair cites, we are learning as we go here, and we have made these adjustments. But in the meantime, we have experienced—and we think this is due to the totality of the Fed’s various facilities—there has been a sharp recovery in the municipal market, and access to the markets has been opened, and notwithstanding the two loans that were made in the MLF, there is broad access to the market, as I mentioned in my opening comments, at historically low interest rates. So we think the program has been successful. The mere size of the announcement of the program, the $500 billion, had an immediate positive impact. How did that happen? Because long-term investors were comforted that the Fed was standing by to meet the liquidity needs of State and local governments to make sure that they did not run out of cash and they did not default for liquidity purposes as opposed to for credit concerns. Ms. SHALALA. Thank you. I do have another question. Mr. HITESHEW. Sure. Ms. SHALALA. Many potential borrowers and commentators, including three of our four witnesses today in our second panel, believe that the terms of the Municipal Liquidity Facility are too restrictive. The interest rate is too high; the 36-month term is too short; and the use of loan proceeds are overly constraining. We understand that the Federal Reserve lends at a penalty rate and views itself as the lender of last resort. But it also has the discretion to determine what an appropriate penalty should be. Given the needs expressed by State and local governments experiencing economic crisis, why did the Fed establish stringent terms that render the program unapproachable for most borrowers? Mr. HITESHEW. We do not believe that the program is rigidly designed. We believe that it is carefully calibrated to meet the purpose of the program. Our pricing is based on the methodology that VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00016 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 13 is grounded in Federal statute, regulation, and our longstanding principles, as adopted by Regulation A in 2015 by the Federal Reserve after a 2-year rulemaking process that included broad public support across the ideological spectrum for the imposition of a premium rate in 13(3) loan facilities. We have adjusted that rate once over the summer as we saw the municipal market rally, and we wanted to make sure that the backstop continued to provide its intended purpose and to make sure, if there should be a sell-off in the future, that we were tighter to current market rates. So we have been flexible in terms of pricing. In terms of the maturity, Madam Chair, the purpose of the program is to provide liquidity. Most State and local governments are required, as you know, to have balanced budgets and have very limited capacity to borrow across fiscal years. We wanted to design a program that was applicable to all but that, of course, has to recognize that Federal law cannot supersede local statutes and Constitutions. And so to the extent that issuers have the ability to borrow beyond a year for operating and liquidity purposes, we are available to provide for that. But I think the key is not to look at what the program requirements are but what the results have been in the municipal market. We have State and local governments that are rushing to market to take advantage of interest rates, low interest rates, to achieve significant debt service savings. I believe O’Hare Airport announced a refunding for next week in which the target is 20 percent savings on their bond. Ms. SHALALA. Thank you. I yield back and turn to Senator Toomey for 5 minutes of questioning. Senator TOOMEY. Thank you, Madam Chairman. Mr. Hiteshew, I think, if I heard you right, when you were discussing how the program—how the pricing works, you said that the pricing by design is meant to be at a premium in terms of the cost to the prior, what I would consider ordinary conditions, but a discount to stressed levels. So, by design, is it fair to say that if the market were to return to something like the prior ordinary conditions, then a typical borrower would be able to go back to the market and access credit at more attractive terms than the MLF offers, and that that is, in fact, exactly what we have seen? First of all, was that the idea? And, secondly, could you characterize a little bit more the municipal bond market today, the volume, the types of issuers that are able to access it? What is pricing like for these issuers? And as a general matter, what is the availability of credit for municipalities? Mr. HITESHEW. Thank you, Senator. In fact, you may know that your home State, the Commonwealth of Pennsylvania, borrowed over $400 million yesterday in the marketplace for 20 years at an average interest rate of 1.93. So that is one indication of where rates are. By design, based on the Fed’s monopoly, muni rates are near zero after having approached nearly double digits. The MTA and other issuers in March had variable rate debt that was pricing, as I said, in the high single digits. Today those are at zero. Three-year rates are generally less than 75 basis points. The triple A curve is VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00017 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 14 about 20 basis points at that point. Thirty-year rates with the triple A curve are at 160, generally with a spread for a double layer or single layer issue you are going to come in at under two and a half. Senator TOOMEY. And can I just interrupt briefly for a quick clarification? So those sound like extremely attractive rates, certainly by historical standards. Are they generally available to issuers? Mr. HITESHEW. They are. As I mentioned, we have experienced record issuance since the recovery began in April, and, again, with interest rates so low, issuers are even issuing significant amounts of taxable debt in order to refinance tax-exempt that the tax rules do not allow them to otherwise do. Senator TOOMEY. Because interest rates are so low. Mr. HITESHEW. That is correct. Senator TOOMEY. Yeah. Quickly, because I am going to run out of time here, the program by design is available to municipalities above a certain size. What does the program offer to municipalities that are too small to meet that threshold? Mr. HITESHEW. The program was designed, again, balancing the need to rush to market, to have a perfect program that came too late would not have been of help to the municipal market. So we had to make decisions, as I said, with 50,000 issuers. So we focused on the large ones at first. We slowly increased the number. But the benefit to all the issuers is that the market has recovered, and the vast majority of issuers have access at extraordinarily low rates. We also developed a feature that allows downstreaming so that States and larger cities and counties have the ability to borrow on behalf of their sub-entities if necessary. Senator TOOMEY. So States can be a conduit for the smaller municipalities within their borders. Mr. HITESHEW. Correct. Senator TOOMEY. Some have suggested that—you know, we have two facilities for corporate debt. We have the primary facility, and we have a secondary market facility. But yet we only have one that is explicitly meant for the municipal debt and that there is an inherent unfairness to that. But wouldn’t it be fair to say that the Money Market Mutual Fund Liquidity Facility effectively serves as a tool to provide liquidity in the secondary market for municipal debt? Mr. HITESHEW. Certainly a certain type of municipal debt, commercial paper programs, supports commercial paper, tax-exempt commercial paper. And the MMLF, the Money Market Fund, supports the RDBs. And as I have noted, in particular, that second program had an enormously positive impact. In terms of the secondary market, we are very cognizant of the differences in the markets, and munis are very different than corporates, as I think everybody here understands, with the number of issuers and the diversity and the idiosyncratic nature of the marketplace and the relative illiquidity in the marketplace compared to corporates and other markets. So our thought was—and we were driven by what we were hearing from State and local issuers—get liquidity available to us as soon as possible, and we wanted to do that and also restore market confidence. We thought that designing a secondary market program VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00018 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 15 for munis would have taken longer. Munis, as you may know, have very little ETFs in it, and the secondary market for corporates is largely being executed through the purchases of ETFs. So while a secondary market facility could have been developed for the muni market, we believe that the MLF was better suited and easier and quicker to get into the marketplace. If we had needed a secondary market facility, we have that capability. But we believe at this point that is not necessary, and we hear from market participants regularly. Every day we are talking to market participants, and we have not heard that they believe one as well. That is the opposite. They do not believe a secondary market facility in munis at this time is necessary. Ms. SHALALA. Thank you. Mr. HITESHEW. But, of course, we remain vigilant in terms of changes to markets. Ms. SHALALA. Thank you. Commissioner Ramamurti. Mr. RAMAMURTI. Thank you, Madam Chair. State and local governments have been hit hard by the COVID– 19 crisis, and they are desperately looking for help. Despite that, we have seen report after report of State and local governments taking a look at the loans offered through the Fed’s lending program and deciding that they cannot justify taking on such harsh terms. Instead, they are moving forward with sharp budget cuts, cuts to our kids’ schools, to housing, to nutrition programs, and more. Mr. Hiteshew, you are leading the Fed’s efforts on this lending program, so I want to understand why you have chosen to make the loans as punitive and unappealing as you have, particularly in comparison to what the Fed is offering corporate America. So let me give you an example. Through its Corporate Credit Program, the Fed has purchased a bond issued by Philip Morris that pays about 0.075 percent interest over a term of more than 41⁄2 years. But the Fed is requiring the State government, like Kentucky, which has the exact same credit rating as Philip Morris, to pay an interest rate of more than 2 percent over 3 years—in other words, a rate more than double what Philip Morris is paying, despite a shorter loan term. So, Mr. Hiteshew, why is the Fed demanding such a high rate from our own State governments when it is willing to accept such a low rate from a company like Philip Morris? Mr. HITESHEW. Well, Commissioner, you and I both agree that the serious condition of State and local government balance sheets needs to be addressed, and we believe that monetary policy has limited capacity to do that and, as the Chair has said on numerous occasions, believe that we will need more fiscal policy to get through this situation. With regard to your specific example, I think there may be a little bit of apples and oranges there, and I believe that you are citing the Secondary Market Corporate Credit Facility. The analog to the muni market is the Primary Corporate Credit Facility for which there have been zero loans made to this point. Mr. RAMAMURTI. Well, respectfully, Mr. Hiteshew—and, again, sorry to cut you off, but my time is limited. Look, the Secondary VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00019 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 16 Market Corporate Credit Facility is set up under Section 13(3). It is subject to the exact same rules and regulations as the Municipal Liquidity Facility, and yet there seems to be no penalty rate for corporations, but there is a significant penalty rate for State and local governments, and that is having a serious impact on the functioning of that facility. And, look, there are dozens and dozens of these examples. Just to give you one more, currently the Fed is using public money to purchase a bond from Chevron at a rate of about 0.09 percent over more than 41⁄2 years while a State like Wisconsin with the exact same credit rating as Chevron has to pay 1.28 percent over 3 years—again, a substantially higher rate despite a shorter term. So, look, there are two main variables here that affect how punitive these loans are: the interest rate and the length of the repayment term. And I want to understand if there is anything stopping you from making each of these variables less punitive for State and local governments. So on the rates, as you noted, the Fed has already dropped the interest rates offered to State and local governments by half a percentage point, which means that you were not offering the lowest possible rates before. Is there anything legally that prevents you from reducing the rates further so that they are comparable to what corporations are getting from the Fed? Mr. HITESHEW. Again, Commissioner, corporations are the Secondary Market Program that you are citing. The Primary Market and the Main Street Facilities both have premiums that are established—— Mr. RAMAMURTI. Mr. Hiteshew, can you answer very simply? Is the Secondary Market Corporate Credit Facility subject to the same 13(3) authority as the Municipal Liquidity Facility? Mr. HITESHEW. It is. I am not—— Mr. RAMAMURTI. So why is there a difference on the penalty rate? Mr. HITESHEW. I would like to answer by saying that I am not an expert on the Secondary Market Facilities. We would be glad to put together a call for you with our General Counsel, but they are subject to Reg A. They are in compliance with Reg A in a different manner than open market lending. Mr. RAMAMURTI. Okay. And I am sorry to cut you off, just because I want to keep moving with my time, and I will take you up on that offer. It sounds like potentially there is an opening here given what you have said. Here is another example: the repayment term. The lending facilities for mid-sized companies—and, again, these are primary market loans—have a term of 4 or 5 years while the State and local lending program only allows 3-year repayment terms. Is there any explicit legal restriction that stops you from extending the repayment term to 5 years like the corporate facilities offer? Mr. HITESHEW. There is no legal limitation. We have programs that are designed for different markets to reflect the differences in those markets. Mr. RAMAMURTI. How about 10 years? Is there anything that restricts it from going to 10 years? VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00020 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 17 Mr. HITESHEW. The program is designed to restore market conditions through making liquidity available to State and local governments. In general, State and local governments have limited authority to borrow for liquidity—— Mr. RAMAMURTI. Sure, but they could obviously change those laws if the Fed is offering something that is appealing to them. Look, my time is up. Thank you, Mr. Hiteshew. It sounds like there is no legal restriction that is stopping you from making these terms much more generous. I do not think the Treasury and the Fed should be treating State and local governments worse than big corporations. There is no justification for it legally. There is no justification for it economically. And I hope that the Fed and the Treasury will move quickly to fix these problems. Thank you, Madam Chair. Ms. SHALALA. The gentleman yields back. Thank you. Congressman Hill is recognized for 5 minutes. Mr. HILL. Thank you, Madam Chair. Mr. Hiteshew, you mentioned in your testimony the market has largely stabilized from the levels that we saw in April, and that was largely due to the announcement of the MLF. Is that correct? Mr. HITESHEW. Yes. I would just correct that a little bit by saying I think you have to look at the totality of the Federal Reserve interventions in all the markets. But, certainly, the MLF together with the MMLF and the CP program all had positive impacts on the muni market. Mr. HILL. And to date, the Metropolitan Transportation Authority of New York, who we will hear from in a few minutes, and the State of Illinois have participated in the program. Are there others that you know of that plan on taking advantage of the MLF? Mr. HITESHEW. Congressman, as a matter of policy, we do not disclose applicants until the loans are purchased. But there is plenty of—— Mr. HILL. What is your pipeline right now, would you say, in terms of either numbers or dollars? Mr. HITESHEW. Again, we have ongoing daily conversations with issuers across the country, so we are aware of issuers that are interested in the program. We have one specific issuer that has come into the pipeline and may be doing a financing in the next couple of weeks where—— Mr. HILL. Thank you. Mr. HITESHEW [continuing]. —The notes may or may not be purchased, depending on, again, market management. Mr. HILL. I understand. Mr. HITESHEW. Beyond that, there are a number of other major issuers that are contemplating the program. Mr. HILL. Thank you. Do you believe the 12/31 deadline for the expiration of this facility should be extended? Mr. HITESHEW. That is a call for the Board and the Secretary of the Treasury to make as we get closer to the end of the year. As you know, the Municipal Facility was the first facility to be extended from September 30 to December 31. And while we are not by any means projecting that we will see any kind of market turbulence like we saw in March, there are warning signs in the muni market that we should all be aware of. The coming cuts and poten- VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00021 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 18 tial downgrades of State and local governments could affect market conditions, and so we remain vigilant, and we believe that through the end of the year, at a minimum, this is an important facility to, again, backstop the market, provide confidence to the market so that all issuers, whether they are directly eligible or not, have access to affordable capital. But as we get closer to the end of the year, that will be a determination that the Board and the Secretary will make based on what market conditions look like at that point. Mr. HILL. Thank you very much. Mr. HITESHEW. As they will with all the facilities. Mr. HILL. Chairman Powell has been vocal over the months working with us that the Fed is learning as they go when it comes to designing and implementing these 13(3) facilities. And as noted, on August 11, the Fed lowered the interest rate by 50 bps on the Municipal Liquidity Facility, at which point the Metropolitan Transportation Authority in New York, who we will hear from in a few minutes, took advantage of the program, getting a better rate than it could from the street. And this is to Senator Toomey’s point. Since this is a backstop program, as you have testified—and this seems to be in direct contradiction to my friend Commissioner Ramamurti in the sense that the MTA rejected 20 private sector bids for $1.6 billion in offers on their bond anticipation notes and took the Fed up on their offer and placed, if my memory is right, about $450 billion at 1.92 percent at the Fed, even though the street’s bids were at 2.79. What is your comment on that? Mr. HITESHEW. Congressman, the MLF does not set pricing for individual loan purchases but, rather, we use a uniform pricing grid based on average credit ratings—— Mr. HILL. I understand that. I have seen the grid, and I understand it. But, obviously, it was to the advantage of the MTA to come directly to the MLF, which seems to contradict my friend. And I am just curious. If the market rate is 2.79, how does that reflect you being a backstop lender as opposed to someone competing with the private sector? Mr. HITESHEW. Again, the facility is uniformly applicable and broadly available to eligible issuers, and so on that particular day, that was the result of the competitive bidding process that the MTA undertook. And we are an open lending window, and that was the rate that the MTA qualified for, and that was their decision. Again, yes, we act as a backstop, but, again, with the number of issuers in the marketplace, there will be different prices on different days for different issuers. Mr. HILL. Thank you, Madam Chair. I yield back. Ms. SHALALA. Thank you. We will now start the second round of questioning by the Commissioners. In June, the Federal Reserve lent $1.2 billion to the State of Illinois through the Municipal Liquidity Facility. An economist on our second panel, Mr. Edwards with the Cato Institute, testified it is not appropriate for the Nation’s central bank to finance the States because, in his judgment, the States have a large independent fiscal power to tax, save, borrow, and adjust spending. His testimony goes on to say that the MLF is an unneeded central bank expansion into State budget policy. VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00022 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 19 Do you agree with these statements? Why or why not? Mr. HITESHEW. The Municipal Liquidity Facility is designed to not only provide liquidity to State and local governments in an emergency situation, but it is also designed to restore market confidence. I think that 6 months since the events, those folks who are not as active in the municipal market cannot appreciate the stress that that market was under in March. You have two issuers on your next panel that can testify to their day-to-day heightened concerns about maintaining their market access during that period of time. And so the MLF has had an enormously important contribution to make to stabilizing the markets for all issuers, and I would not want to comment on his point about the appropriateness of the lending to locals on an individual basis. This is a broad program that is applicable on a uniform basis. We do not pick individual issuers. If you are eligible and you meet the eligibility criteria, you have access to this facility. By design, that is what makes it such a powerful facility. Ms. SHALALA. Actually, it is not so powerful if only 250 entities are eligible to directly access a facility, and the vast majority of nearly 80,000 public issuers are left out, with the exception that Governors can designate a couple of local governments, which actually pits them against one another when they should be instead working toward common goals. Why is the Federal Reserve imposing such restrictive limitations to access when over 99 percent of the facility remains unused? Why is the MLF restricted to just a handful of municipalities? Mr. HITESHEW. Great question, Madam Chair, and I think it goes back to my point about speed to announcement and execution and the complexity of trying to set up a Federal lending window for 50,000—you said 80,000—unique issuers with a wide spectrum of sizes, types, purposes, and credits. So our goal was to identify some of the largest issuers, a signal to the marketplace that those issuers would have full access to liquidity from the Fed window, and in doing so make sure that the market works for everybody. So if we believed today that we needed to expand the aperture of issuers that were eligible, that is something that we could certainly do, and we would be glad to work with you and your staff and other Members of the Commission to identify underserved issuers that we might be able to expand the program to serve. But, again, the focus is on the number of issuers that are eligible as opposed to what we believe the importance of the program has been to make all issuers have access to capital at historically low rates. Ms. SHALALA. Dr. Zandi, the Chief Economist at Moody’s, testifying in our second panel, is going to testify that State and local governments have already cut more than a million jobs as a result of the crisis. How does the Federal Reserve reconcile its mandate to maximize employment with the very restrictive terms it established for the MLF, terms that severely limit its use by struggling State and local borrowers? That is just a followup question. Mr. HITESHEW. Madam Chair—excuse me? Ms. SHALALA. Go ahead. Mr. HITESHEW. I am sorry. Madam Chair, I would like to pass on that question and have that be addressed to our policymakers and the Chair. I am not here to talk about monetary policy. That VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00023 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 20 is not my expertise. I joined the Fed in March with a strong background in the municipal markets and public policy relating to State and local government finance. So I would say that the Chair has advocated for more fiscal policy to deal with this crisis and that monetary policy tools are limited in their capacity to solve the problem. I think all of us would agree that while State and local governments cannot cut their way out of this recession, neither can they borrow their way out of it. And if the legacy is operating deficit financing on State and local government balance sheets after this crisis is over, that will limit their ability to finance infrastructure, to educate our students, and to care for our elderly. Ms. SHALALA. Thank you. I yield back. Senator Toomey. Senator TOOMEY. Thank you very much, Madam Chairman. I just want to follow up on a point that Commissioner Ramamurti was making earlier, and I want to underscore the MLF is a primary market facility. In other words, its purpose is to purchase debt directly that is issued directly to the SPV that is set up under 13(3) for that purpose. The corollary program for corporate lenders is the Primary Market Corporate Credit Facility, and that charges a penalty rate of 100 basis points above whatever the previously prevailing market rate was. And my understanding is there has been a grand total of zero issuance into the Primary Market Corporate Credit Facility. Mr. Hiteshew, is it your understanding that there have been no direct issues into this corollary program, the Primary Market Corporate Credit Facility? Mr. HITESHEW. You are correct, Senator. Senator TOOMEY. So there has been no corporate subsidies going on here. I think there is an important point we need to keep in mind here. This program was never intended to be the mechanism by which we provide subsidized debt to municipalities. It is a fiscal question that that poses. Should the Federal Government be subsidizing any cost of a State or local government? It is a fair question. We can have that debate. But it is a fiscal debate, and that was not the purpose of these programs. But it was the purpose to ensure that municipal and State borrowers would have access to credit. And so, Mr. Hiteshew, let me ask you this: Much has been made of the fact that there have been only two borrowers under this program. Are you aware of a significant number or any number—tell us what you know about States and municipalities that need access to credit and they cannot get it, they have no access to credit? Mr. HITESHEW. Senator, I have a long history in the muni market. For better or for worse, a lot of people in the muni market know me, and they know how to get a hold of me. So I have had ongoing discussions with issuers and market participants since the first day on the job. I can tell you that those first weeks, those first couple months, the phones were ringing off the hook to all Members of the Fed. Senator TOOMEY. Sure. Mr. HITESHEW. There were extreme, extreme concerns out there, and that is why we rushed our facility to market so quickly. VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00024 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 21 Those calls have significantly cut back as issuers have had access to the market without the MLF, without needing to go to the MLF. They go directly to the market. So I would not pretend to be the person who knows about every State and local government, the 50,000 issuers out there. But of those that are not directly eligible for the program, we are not aware of any, as I said in my testimony. But I am sure there are some. There are some that have serious credit problems, especially if they are secured by, for example, a hotel tax, if they are a real estate transaction. There are credit problems out there. But we believe that the liquidity problems have been addressed. Senator TOOMEY. So I think I heard you say you are not aware— you assume that they are out there somewhere, but you are not aware of a specific borrower or municipality or State that wants access to credit and simply cannot get it. Mr. HITESHEW. Not from the MLF. Senator TOOMEY. Okay. Some have suggested that the terms should extend much longer than the zero to 3 years. Let me ask you this: Is there distress, is there a lack of liquidity, is there a nonfunctioning market at the longer end of the maturity spectrum in the municipal market today? Mr. HITESHEW. Well, there very much was in March and April and extending into May, and so that was a tradeoff that we had to make, as I said earlier. Do we rush to market something we knew we could make work and that would be large? The $500 billion was not necessarily designed to think that it will all be used, but it was meant to make a statement about the importance of the municipal market and that the Fed was entering that market for the first time in its history. And so by rushing to market a large program, open window, 3 years, which reflects generally what the maximum that State and local governments can borrow for liquidity purposes, we very much hoped and we have been pleased so far that it has translated into confidence at the long end of the market. Senator TOOMEY. I understand that. But the short question is simply: Is there liquidity at the long end of the market today? Mr. HITESHEW. There is. Senator TOOMEY. Thank you. Ms. SHALALA. The gentleman yields back. Commissioner Ramamurti. Mr. RAMAMURTI. Thank you, Madam Chair. Just quickly on Senator Toomey’s point, first of all, the Secondary Market Corporate Credit Facility is subject to Section 13(3), just like this program, and is subject to the same penalty rate requirement, so I fail to see why accepting such a low rate on the secondary market program is okay for companies but we must demand a much higher rate when it comes to municipal borrowers. And, second of all, there is a primary market program for companies, the Main Street Facility, that has done quite a few loans. To date, it offers a 5-year repayment term, so it seems to me like without question that is an analog to the situation and a clear indication that the Fed could certainly extend the repayment term up to 5 years for municipal borrowers as well. Turning to my next round of questions, the Fed recently issued a new statement on monetary policy. One of the main takeaways VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00025 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 22 was that the Fed’s legal goal of full employment is a ‘‘broad-based and inclusive goal.’’ Fed Chair Powell also recently released a statement on racial injustice in which he said, ‘‘The Federal Reserve serves the entire Nation. Everyone deserves the opportunity to participate fully in our society and in our economy, and these principles guide us in all we do, including monetary policy.’’ Mr. Hiteshew, I assume you agree with those goals? Mr. HITESHEW. Broadly. But, again, I am not here to address monetary policy. That is not my expertise, and so I would defer to your comments that the Chair made and would not have any further comment. Mr. RAMAMURTI. Well, you do in a sense because the Fed lending programs, including the State and local government lending program that you run, are part of the Fed’s exercise of its monetary policy power. It has been quite clear about that. So don’t you think that the goals that I just described should guide how you design and implement the State and local government lending program? Mr. HITESHEW. We are very concerned about the fiscal condition of State and local governments. As I said in my statement, 20 million workers, 13 percent of the workforce in the country, and there is—the recovery of the State and local market, State and local fiscal condition is critical to the overall recovery of the economy. Mr. RAMAMURTI. Yeah, I appreciate that, and thank you for bringing up that point about the people who work for State and local governments, because if you look at that data, in my opinion, it is pretty clear that the Fed is failing to achieve the goals that Chair Powell and others have laid out. The Fed’s corporate credit facilities and other interventions have boosted the stock market, but black families do not share equally in that financial success. They make up more than 13 percent of the U.S. population but own only 1.5 percent of stocks. Meanwhile, the Fed’s failure to provide meaningful help to State and local governments is crushing black workers in particular. State and local governments have already cut more than a million jobs and are projected to cut 2 million more without Federal help, and they employ a disproportionate number of black workers. In fact, a worker who is laid off in the public sector is 20 percent more likely to be black than a worker who loses his or her job in the private sector. And I think that is part of the reason why the black unemployment rate currently is 5.7 percentage points higher than the white unemployment rate. So when the Fed is stingy with State and local governments and generous with corporations and with Wall Street, it further widens the divide between black and white families in this country. So, Mr. Hiteshew, if the Fed wants its recent statements to be more than just window dressing, don’t you think it needs to do a lot more to account for these huge disparities in its COVID response so far? Mr. HITESHEW. Commissioner, I think that we restored market access for the vast majority of State and local governments, and that translates directly into benefits in their community and preventing more cuts than have already happened. As I said in one of my comments earlier, we agree with you that State and local governments cannot cut their way out of the steep decline in reve- VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00026 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 23 nues and the rapid decline in revenues that we have seen, but neither can they likely borrow their way out of it. So—— Mr. RAMAMURTI. I appreciate that, Mr. Hiteshew, and, again, I am sorry. My time is short. Look, I think you have to be realistic about the fact that if no further Federal aid is coming from the Federal Government directly, the tool that you have in front of you can offer significant relief to State and local governments if you make the terms more generous while staying within the law. And, look, I raised two issues in the first round of questions, which were lowering the interest rate and lengthening the loan term. It sounded like both of those were potentially consistent with the legal restrictions the Fed is operating under. The other thing I am hoping that you can take a look at is something that the Chair mentioned, which is changing the eligibility requirements for the lending program. So, for example, Guam and Puerto Rico and Indian tribes are shut out categorically from this lending program. Other criteria like the credit ratings and also the fact that you have to be rated by a national statistical ratings organization are also exclusionary. So will you just commit to me to take a fresh look at each of these eligibility restrictions through the lens of whether they serve what Chair Powell called ‘‘the Fed’s guiding principles’’ of inclusion? Mr. HITESHEW. Commissioner, we would be glad to do that. Mr. RAMAMURTI. Thank you, Mr. Hiteshew. I see my time is up, and I yield back. Thank you, Madam Chair. Ms. SHALALA. The gentleman yields back. Mr. Hiteshew, let me thank you for your long service and for your time and testimony today. We will now proceed to the second panel’s testimony, and after all the witnesses have given their testimony—— Mr. HILL. Madam Chair? Ms. SHALALA. Oh, I am sorry. I am so sorry. My good friend Commissioner Hill, please. Mr. HILL. Thank you, Madam Chair. I want to follow up on this secondary market discussion that you had with Senator Toomey, and I wondered if you had evaluated the use of closed-in funds as a way to participate in the municipal secondary market. You noted that exchange-traded funds are fairly limited in municipals, but over the decades, closed-in funds, while not large cap, have been. Did you evaluate that as a potential way to support the secondary market? Mr. HITESHEW. Thank you, Congressman. We have a team within the Fed that works with me on the municipal market and potential responses. I would not want to go into too much detail in terms of the types of interventions we have been evaluating, but suffice it to say that the secondary market intervention in the muni market would be complex. And, again, for the first time there are a number of considerations that we would have to be making. And so, again, we are evaluating the markets, and we are prepared to act if necessary. Closed-in funds and other ways of accessing or intervening into the secondary market have been evaluated, but I would not want to go further than that. VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00027 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 24 Mr. HILL. Okay, thank you. Let us talk about smaller States like Arkansas who received $1.25 billion of CARES Act money. They also in one of your modifications allowed Governors to designate the largest county or city to be an issuer, potential issuer to the MLF. Have you found that Governors taking you up on that offer have a majority of the States who were ‘‘small’’ and did not have a rated large municipality? Are they taking you up and designating counties? Mr. HITESHEW. We have not received any indication of that. You would know better than me, Congressman, but we have not heard from the Arkansas Governor about Little Rock, for example. Mr. HILL. I understand. I fully understand the situation in Arkansas. I just was curious more broadly because it illustrates, I think, Senator Toomey’s point that we do not have a lot of Governors actually designating their larger cities or counties that were not previously designated as a large rated issuer. I do want to talk about another challenge to smaller States, and that is the use of entities to issue debt, to participate in the MLF, and then support lower subdivisions in their State. In my home State, we have the Arkansas Development Finance Authority, ADFA, and it is the exclusive issuer of bonds for State agencies. And, therefore, they have typically acted as a conduit. Is it the Fed’s intention to let these sorts of conduit issuers have access to the program? Mr. HITESHEW. Congressman, I am familiar with ADFA. I used to work with them a little bit when I was an investment banker. The program was designed initially to deal with State and local governments and their instrumentalities, generally essential service public providers. We broadened the definition, as you noted, to allow Governors to select up to two revenue bond issuers. The only limitation on the revenue bond issuer is that it has to be financing governmentally owned assets, so it is consistent with the State and local government—consistent with the MLF objectives. For example, ADFA probably issues a lot of private activity bonds. Those would not be eligible. But to the extent that ADFA issues bonds for governmentally owned entities and they have a creditworthy revenue stream, they may be eligible for the program. We would be glad to talk to you about the specifics that you have in mind to determine whether, in fact, that entity would have direct access. I think it depends on what that entity is financing—— Mr. HILL. I understand. Well, I think that is a point of education in our States where you have a facility such as an arena that does not have business now due to the tourism impact and in some States government shutdowns. And, therefore, they are a public facility, sometimes operated by a county, sometimes operated by a facilities board, but they are not typically a bond issuer, and that is why I raise it. Is that something that you think might work under a conduit like an ADFA bond issuer? Mr. HITESHEW. It may be able to. And, also, of course, the State, or Little Rock, for example, could borrow on behalf of one of these arenas or entities pursuant to the downstreaming provisions of the original MLF design. VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00028 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 25 dkrause on LAP5T8D0R2PROD with $$_JOB Mr. HILL. Right. Thank you for your testimony today. I appreciate your participation with our Commission, and I yield back, Madam Chair. Ms. SHALALA. Thank you very much, and I apologize, Commissioner. Let me thank Mr. Hiteshew for your time, for your service, and for your testimony today. We will now proceed to the second panel’s testimony. Let me submit for the record a letter from the Treasurer-Tax Collector of Alameda County, Henry Levy. Without objection, for the record. [The letter follows:] VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00029 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00030 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.006 dkrause on LAP5T8D0R2PROD with $$_JOB 26 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00031 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.007 dkrause on LAP5T8D0R2PROD with $$_JOB 27 28 Ms. SHALALA. We will now hear from Mr. Patrick McCoy, Director of Finance of the Metropolitan Transportation Authority. Mr. McCoy, you are recognized for 5 minutes. dkrause on LAP5T8D0R2PROD with $$_JOB STATEMENT OF PATRICK MCCOY, DIRECTOR OF FINANCE, METROPOLITAN TRANSPORTATION AUTHORITY Mr. MCCOY. Thank you. Senator Toomey, Representative Hill, Representative Shalala, Commissioner Ramamurti, thank you for holding today’s hearing examining the Municipal Liquidity Facility. My name is Pat McCoy, and I serve as the finance director of the Metropolitan Transportation Authority in New York. The MTA provides critical public transportation services to a population of 15 million people, including broad and diverse communities that have been most severely impacted by the COVID–19 pandemic. This region contributes nearly 10 percent of national GDP, and it is only possible because of the MTA. Much like public service providers across the country, MTA is experiencing unprecedented financial hardship due to the pandemic. Prior to its initiation, the MTA was experiencing an $81 million surplus forecasted for our current year and 6 consecutive months of on-time performance. As a direct result of this pandemic, we have projected a $12 billion loss of revenue across 2020 and 2021. Our core credit, the Transportation Revenue Bond, with nearly $30 billion outstanding, has been downgraded five times since March, and our long-term credit spreads have increased by over 200 basis points. The impact continues to be felt, and we are desperately seeking $12 billion in Federal funding just to get us through 2021. Federal funding and financing opportunities through the MLF have been critical to the MTA thus far. However, financing tools are not a substitute for direct funding assistance and cannot solve the unprecedented fiscal crisis that we are facing. As a frequent issuer with over $46 billion in bonds outstanding, market stability is crucial to the MTA. Between March 18th and 23rd, all U.S. markets experienced a precipitous decline in investor activity due to the pandemic. The $4 trillion municipal market seized up, resulting in short-end yields climbing to nearly 10 percent. With passage of the CARES Act and the MLF, credit markets, including the municipal market, were provided a critical boost in confidence that had a tangible positive impact on the free flow of capital. To be clear, the MTA, as well as issuers across the country, would prefer funding to financing, especially when it comes to MTA’s revenue shortfalls and other operating challenges brought on by the pandemic. The Federal Reserve should maintain this credit program until this crisis plays out. Many municipalities are likely to seek working capital solutions in the capital markets, which could place a significant strain on the municipal market in the near future. The MTA was able to utilize the MLF in August with an issuance of $450 million of transportation revenue bond anticipation notes. Issuing the notes to the MLF provided a critical bridge to a long-term solution to address the repayment of this debt. Our competitive bid, as noted earlier, resulted in 20 bids from ten VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00032 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 29 dkrause on LAP5T8D0R2PROD with $$_JOB banks totaling $1.6 billion at varying rates. The average true interest cost of the bids necessary to clear the issue was 2.79 percent in comparison to the MLF cost at 1.93 percent. As a point of comparison, earlier in the year we issued $1.5 billion in bonds in early January with a true interest cost of 1.32 percent. I would like to offer a few suggestions for the MLF that have the potential to help governments most in need and to provide issuers across the country the additional support to manage through the pandemic. My first suggestion is regarding timing. Forecasts from economists broadly agree that the recession effects of necessary shutdowns due to the pandemic will have a lagging effect that will last well into 2021. An extension of the MLF’s origination period into 2021 would very likely mean more access for issuers who will need it most. The 36-month maximum term of the note is too restrictive. Few governments across the country utilize short-term borrowing due to constitutional or local policy-imposed restrictions. The MLF is really only relevant to a few large local governments across the country. If the facility was open to underwriting longer-term securities, a broader set of issuers could use the facility to finance infrastructure and finance COVID-related revenue losses. Second, the Federal Reserve should reconsider the impact of penalty pricing to participate in the MLF. Provided the policy objective intended by Congress, we would encourage the Fed to refine its pricing structures in a way that would not unduly penalize an issuer. Finally, access. This pandemic has different revenue and expenditure effects on different types of issuers, and it will continue to have a profound impact on the financial condition of governmental units that will continue to serve on the front lines of this national crisis. Expanding the facility to include an expansive network of essential public service providers will help to underpin the infrastructure we use to keep the country running. I appreciate your consideration of this testimony. The MTA’s consistent and overarching request from our Federal legislators is for direct, unencumbered funding to ensure stability in this environment where revenues are falling drastically short due to suppressed ridership. But our request also extends to support the municipal bond market. We look forward to working with you to improve the Municipal Liquidity Facility. Thank you. [The prepared statement of Mr. McCoy follows:] VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00033 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00034 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.008 dkrause on LAP5T8D0R2PROD with $$_JOB 30 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00035 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.009 dkrause on LAP5T8D0R2PROD with $$_JOB 31 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00036 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.010 dkrause on LAP5T8D0R2PROD with $$_JOB 32 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00037 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.011 dkrause on LAP5T8D0R2PROD with $$_JOB 33 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00038 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.012 dkrause on LAP5T8D0R2PROD with $$_JOB 34 35 Ms. SHALALA. Thank you, Mr. McCoy. We will next turn to Mr. Marion Gee, the President of the Government Finance Officers Association and the Finance Director of the Metropolitan St. Louis Sewer District. Mr. Gee, you are recognized for 5 minutes. dkrause on LAP5T8D0R2PROD with $$_JOB STATEMENT OF MARION GEE, PRESIDENT, GOVERNMENT FINANCE OFFICERS ASSOCIATION, AND FINANCE DIRECTOR, METROPOLITAN ST. LOUIS SEWER DISTRICT, MISSOURI Mr. GEE. Thank you. Senator Toomey, Representative Shalala, Representative Hill, and Commissioner Ramamurti, thank you for holding today’s hearing on the Municipal Liquidity Facility created under the CARES Act. I am Marion Gee, and I am honored to be here in my capacity as President of the Government Finance Officers Association. But I will also share some insight with respect to the Metropolitan St. Louis Sewer District where I serve as Finance Director. The CARES Act was an important start to provide some relief to State and local governments as we attempted to navigate the response to the COVID–19 pandemic. The response continues and further assistance is needed. The first best option is to provide direct Federal funding as it can be rapidly deployed; whereas, borrowing is inherently most costly and time-consuming. Since additional funding is not a guarantee, the Federal Government must explore other ways to help State and local governments as we navigate these challenging times. Today I will focus on the MLF, specifically why local governments and State governments are not using that, and recommendations to enhance its effectiveness to public sector entities. Not all public entities providing vital services are the same, and each face unique challenges that require practical solutions to help us face those challenges. As currently designed, the MLF is too costly of a solution for us, nor is access widely granted. We all need clean, safe water to take the important step of washing hands and for other hygienic purposes to protect the public health. The National Association of Clean Water Agencies projects the total impact to clean water utilities nationwide from lost commercial and industrial revenues at $12.5 billion over the year and $3.8 billion of revenue losses from increased household bill delinquencies due to the COVID–19-related job losses. Commercial water usage on which my agency bases a portion of its bills is projected to decrease by roughly 17 percent over the current fiscal year. We will face additional challenges as water usage relating to residential customers is increasing. The revenue losses and substantial costs for maintaining services pose a significant challenge for public entities like mine. Next, my State and local government colleagues face similar revenue struggles and will continue to do so into 2021. Since more direct funding is uncertain, we need additional options from our Federal partners at a low cost and recognize the uncertainty regarding how long this public health crisis will last. Income, property, and sales taxes are among the main sources of revenue for State and local governments. Since revenues generally VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00039 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 36 dkrause on LAP5T8D0R2PROD with $$_JOB lag behind economic changes, the full picture of the pandemic’s impact on these will be unknown for some time. This leads me to the MLF. As currently designed, it is not a practical solution for many public entities. Direct access to the MLF is too restrictive for most public entities. Only 250 entities are eligible to directly access the facility, leaving out the vast majority of nearly 80,000 public issuers. My agency is not an eligible entity to directly access the MLF unless it is designated as an eligible revenue bond issuer by the Governor. Access should be expanded to a larger, more diverse pool of issuers. The MLF’s 36-month term should be lengthened, and borrowers should have greater flexibility with regard to the use of the proceeds. The vast majority of public entities issue debt for capital needs more than they do for operational needs. Issuing 36-month debt is rare. Increasing flexibility so borrowers can use proceeds for investments like capital projects means job creation and boosting the economy. The Fed should extend the underwriting deadline of the MLF beyond December 31, 2020. The facility is currently set to expire at the end of the year, even though we will not know the extent of revenue challenges State and local governments will face until well into 2021. The MLF pricing is unduly punitive. The penalty pricing structure of the MLF term sheets does not make it a viable solution for municipal issuers like my agency. Pricing should be competitive with the market or lower; issuers in dire circumstances should not be penalized. The Fed should create a facility to provide relief by purchasing municipal securities in the secondary market, similar to the secondary purchasing program in the Secondary Market Corporate Credit Facility. Given the uncertainty regarding the duration of the COVID–19 pandemic, we could see a replay of this year’s cash crunch and selloff in the muni market. Thank you for the opportunity to address the Commission today. I am happy to address any questions. [The prepared statement of Mr. Gee follows:] VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00040 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00041 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.013 dkrause on LAP5T8D0R2PROD with $$_JOB 37 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00042 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.014 dkrause on LAP5T8D0R2PROD with $$_JOB 38 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00043 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.015 dkrause on LAP5T8D0R2PROD with $$_JOB 39 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00044 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.016 dkrause on LAP5T8D0R2PROD with $$_JOB 40 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00045 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.017 dkrause on LAP5T8D0R2PROD with $$_JOB 41 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00046 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.018 dkrause on LAP5T8D0R2PROD with $$_JOB 42 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00047 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.019 dkrause on LAP5T8D0R2PROD with $$_JOB 43 44 Ms. SHALALA. Thank you, Mr. Gee. We will next turn to Mr. Chris Edwards, Director of Tax Policy Studies at the Cato Institute. Mr. Edwards, you are recognized for 5 minutes. dkrause on LAP5T8D0R2PROD with $$_JOB STATEMENT OF CHRIS EDWARDS, DIRECTOR, TAX POLICY STUDIES, CATO INSTITUTE Mr. EDWARDS. Thank you very much for inviting me to testify today. I will discuss the Municipal Liquidity Facility and State budget challenges. I have two general points. First, with the economy rebounding, State revenues likely will not fall as much as originally projected. Further aid from the Fed or Congress is not needed, in my view. Second, the MLF undermines market discipline on State borrowing and risks politicizing the Fed. Regarding the State budget situation, Bureau of Economic Analysis data for the second quarter of 2020 show that total State and local tax revenues dipped just 3 percent from the first quarter. Sales and income tax revenues fell, but property tax revenues increased slightly. Home prices in July were up 5 percent over last year, and if they stay up, that will help boost city and county budgets in the months ahead. During the recession a decade ago, local tax revenues did not fall, and that is because property tax revenues remained stable. Looking at the BEA data from the first to the second quarters, total State and local tax revenues fell $13 billion, but total Federal aid to the States soared $193 billion. That suggests to me that the States generally are not short of cash, although some places like New York City do face big challenges. A recent NCSL survey of 37 States found that tax revenues are expected to be down 10 percent on average in 2021 compared to original projections. That translates into just a 4 percent tax revenue drop from the 2019 peak. Most States can handle a downturn with the rainy day funds and spending restraint going ahead. It is true that the States differ. New Jersey and Illinois saved zero in their rainy day funds, even after 11 years of economic expansion. That was totally irresponsible, in my view. If Illinois had saved in its rainy day fund, it would not have needed the MLF loan. And, again, if Illinois had been more responsible and saved in its rainy day fund, it would not have needed the Federal Reserve loan. Here are some concerns about the MLF. Finance expert Robert Pozen warned in an op-ed that expanding the MLF could politicize the Fed. I mean, imagine if the Fed began making regular loans to the States. All those swarms of lobbyists that currently surround Capitol Hill today would open offices surrounding the Fed’s headquarters on Constitution Avenue in Washington. That really would not be a good outcome. In general, State and local governments are far more fiscally responsible than the Federal Government, and not just because they have balanced budget requirements but also because of the discipline of credit markets. State and local governments have strong incentives to act with fiscal prudence to boost their credit ratings and lower their borrowing costs. VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00048 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 45 dkrause on LAP5T8D0R2PROD with $$_JOB Federal Reserve intervention into State and local finance undercuts incentives for fiscal responsibility. It makes no sense for the central bank to undermine market interest rates, which properly reflect market risks and credit risks, in order to reward fiscally unsound jurisdictions. The first MLF loan went to Illinois, which has probably the worst-run finances in the Nation. Did the MLF loans stave off a liquidity crisis in Illinois? Not at all. The MLF loan allowed Illinois to increase its 2021 general fund budget by 5.9 percent, including $250 million in salary increases for State workers. So the MLF loan discouraged needed restraint in Illinois, in my view. In the long run, congressional and Fed subsidies undermine incentives for State and local policymakers to build rainy day funds, to reduce their debt loads, and to pursue restraint. So, in closing, what about the economy in general? Some analysts support more Federal aid and Fed loans to the States, believing it creates a large multiplier boost to the economy. I cite evidence in my written testimony that those multipliers may not be large. While government spending may boost GDP in the short run, a negative side effect is crowding out or shrinking the private sector, which undermines long-term growth. In the long run, growth comes from innovation in the private sector, and if you crowd out the private sector, you are going to reduce innovation and growth in the long run. More deficit spending also means higher taxes down the road, and with the economy now recovering, it is not prudent or fair, in my view, to burden younger Americans with even more government debt. In sum, the MLF undermines the healthy discipline of the municipal bond market and the discipline it creates for State and local governments. Going forward, the States should build larger rainy day funds so when the next recession hits, they will be much better prepared. Thank you very much. [The prepared statement of Mr. Edwards follows:] VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00049 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00050 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.020 dkrause on LAP5T8D0R2PROD with $$_JOB 46 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00051 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.021 dkrause on LAP5T8D0R2PROD with $$_JOB 47 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00052 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.022 dkrause on LAP5T8D0R2PROD with $$_JOB 48 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00053 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.023 dkrause on LAP5T8D0R2PROD with $$_JOB 49 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00054 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.024 dkrause on LAP5T8D0R2PROD with $$_JOB 50 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00055 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.025 dkrause on LAP5T8D0R2PROD with $$_JOB 51 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00056 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.026 dkrause on LAP5T8D0R2PROD with $$_JOB 52 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00057 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.027 dkrause on LAP5T8D0R2PROD with $$_JOB 53 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00058 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.028 dkrause on LAP5T8D0R2PROD with $$_JOB 54 55 Ms. SHALALA. Thank you, Mr. Edwards. We will next turn to Dr. Mark Zandi, Chief Economist at Moody’s Analytics. Dr. Zandi, you are recognized for 5 minutes. Dr. Zandi, are you on mute? Mr. ZANDI. Sorry about that. I apologize. Ms. SHALALA. We do it all the time. Mr. ZANDI. I do as well. I apologize. dkrause on LAP5T8D0R2PROD with $$_JOB STATEMENT OF MARK ZANDI, PH.D., CHIEF ECONOMIST, MOODY’S ANALYTICS Mr. ZANDI. To start over, I just want to thank the Commission for the opportunity to speak and participate today. And I also would like to say that my comments are my own and do not represent those of the Moody’s Corporation. I do have a few charts I would like to show. We will see if we can do that along the way. I will reference them as we go. I will make three points. First, the finances of State and local governments have been hit hard by the crisis. At Moody’s Analytics we estimate that State and local governments in their totality will suffer budget shortfalls of somewhere between $450 billion and $650 billion through fiscal year 2022 depending on the ongoing pandemic. This is a shortfall relative to a flat budget baseline that just assumes that States have enough funding to keep the lights on and avoid layoffs. They do not include any real discretionary budget increases or address any long-term structural problems such as pension or post-employment benefits, and they assume that all of the rainy day funds that the States have are used. States suffering the biggest expected budget shortfalls are shown in red and orange in the first chart, so if you can see that. States dependent on their oil and natural gas industries, including Alaska, Louisiana, North Dakota, and West Virginia, will suffer among the most serious budget shortfalls since energy prices have collapsed in the crisis. And States hit hard by the virus, such as Connecticut, New York, New Jersey, and those with large tourist industries, such as Florida and Hawaii, will also suffer outsize budget shortfalls. Some suggest that State and local governments were profligate spenders prior to the pandemic and should not be supported. There is no evidence of that. As you can see in this second chart, as a share of GDP, State and local government spending pre-pandemic was consistent with their spending during the past 30 years. Most have done an admirable job of raising rainy day funds prior to the pandemic. If you add it all up, it was close to 10 percent of total State government revenue. Only a handful of States—Illinois, Kansas, and Pennsylvania—did not sock something away. The second point I would like to make is that, without additional fiscal support from the Federal Government, State and local governments will have no choice but to cut back on payrolls, essential government services, and critical programs, and this will severely impact Americans in nearly every community and exacerbate the Nation’s serious economic problems. We estimate at Moody’s Analytics that failure by lawmakers to provide any additional direct VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00059 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 56 dkrause on LAP5T8D0R2PROD with $$_JOB aid to State and local governments will threaten the recovery. The odds of recession, return to recession is high. It will cut as much as 3 percentage points from real GDP and erase almost 3 million jobs over the next 2 years. This is on top of the little over 1 million jobs State and local governments have cut in the past 6 months in response to the crisis. That is equal to 6 percent of all jobs. And you can see that in the third chart that I would like to show. These jobs include obviously very critical jobs, police officers, firefighters, health care workers, emergency responders, social service providers, teachers. These are folks that are critical at any point in time, but particularly in a pandemic. Finally, my third point is that since it is increasingly unlikely that Congress and the Administration will come to terms on more aid to State and local government, at least anytime soon, the Federal Reserve’s 13(3) Municipal Liquidity Facility should be made more generous to facilitate its use by hard-pressed State and local governments. To this end, I would make a few recommendations, some of which you have already heard. I would extend the facility’s expiration date beyond the end of this year. I would lower borrowing costs to make them less punitive. I would lengthen terms to make this more operational. I would allow for a deferred payment structure such as that provided in the Main Street Lending Facility for mid-sized companies. And, finally, I would permit MLF funds to be used more broadly than they are currently. Policymakers deserve a lot of credit for responding aggressively to the pandemic. They have used the Federal Government’s resources to help bridge American households and businesses to the other side of the pandemic. The Federal Government’s financial support has run out, but the pandemic rages on. The bridge is unfinished. Unless lawmakers act quickly to extend it, many lowerincome households and small businesses in particular face financial devastation. Congress and the Administration should agree to another significant fiscal rescue package that includes substantial direct aid to State and local governments, and the Federal Reserve should become more expansive in its implementation of the Municipal Liquidity Facility. Thank you. [The prepared statement of Mr. Zandi follows:] VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00060 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00061 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.029 dkrause on LAP5T8D0R2PROD with $$_JOB 57 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00062 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.030 dkrause on LAP5T8D0R2PROD with $$_JOB 58 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00063 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.031 dkrause on LAP5T8D0R2PROD with $$_JOB 59 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00064 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.032 dkrause on LAP5T8D0R2PROD with $$_JOB 60 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00065 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.033 dkrause on LAP5T8D0R2PROD with $$_JOB 61 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00066 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.034 dkrause on LAP5T8D0R2PROD with $$_JOB 62 dkrause on LAP5T8D0R2PROD with $$_JOB 63 Ms. SHALALA. Thank you. Thank you, Dr. Zandi, and the other witnesses as well for their testimonies. As with the first panel, we will move to two rounds of 5-minute questioning of these witnesses. I will recognize myself for 5 minutes of questions. Dr. Zandi, let me start with you. Mr. Edwards, a fellow economist, testified that the States are facing budget challenges, but they can restrain spending and tap rainy day funds to balance their budgets without further aid from Washington. He also said that millions of American businesses have tightened their belts in recent months, so why can’t governments? In your expert opinion, can State and local governments simply tighten their belts in lieu of additional Federal assistance? What would be the economic and social consequences of such a proposal? Mr. ZANDI. I think the fiscal pressures here are incredibly intense, and I mentioned $450 billion to $650 billion through fiscal year 2022, so over the next 2 years, and that assumes that they use all of the rainy day funds that were quite ample coming into this. And if there is no additional support, then State and local governments will be put into a position of significantly cutting back. That means payrolls, more job loss, as I mentioned, 2 to 3 million more in job loss, and that is going to happen relatively soon, relatively quickly, if they do not get the aid. That means cutbacks in essential government services. You know, the key programs, many of those programs are critical to supporting the most hard-pressed in our communities—lower-income households, smaller businesses. And this would be devastating to the economy, very procyclical, exacerbating the end downturn. I should point out, you know, providing aid to State and local government in recessions is tried and true. We do this every single time we face this because we know that if the Federal Government does not provide help to State and local governments, they will have to make those cuts. That will exacerbate the recession and make things worse for everyone and for the broader fiscal situation. So this is something that we have done in each recession. We did it in the financial crisis. There is lots of good academic research that shows that. And not doing it here would be a significant error. Ms. SHALALA. Thank you. Mr. McCoy, Mr. Edwards testified that the two MLF loans have saved the issuing entities interest costs, but that is not a goal worth undermining federalism for and pushing aside the market interest rates. You represent one of the issuers that borrowed under the MLF. How do you respond to that testimony? What would be the impact to the MTA and your city’s residents if the Federal Reserve provided no aid either through the MLF or otherwise? Mr. MCCOY. Thank you for the question. You know, I believe that without the MLF, we would incur higher costs. We know that, and I included that in my testimony. The facility has both practical applicability as well as psychological applicability to the entire market, and that has clearly had a very calming influence on the market, and the availability of this facility for State and local issuers cannot be underscored enough. To not have it, I think we would see a very different environment in the municipal market VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00067 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 64 today, much more challenging conditions for issuers to get in and borrow money at rates that, you know, would have been common pre-COVID. I hope that answers your question. Ms. SHALALA. Thank you. Mr. Edwards, your fellow panelists all warn of devastating job cuts, service cuts, and slow economic rebound across the country if additional Federal aid is not provided. My city, Miami, had a surplus and a rainy day fund, yet we are also facing devastating cuts. Despite overwhelming testimony to the contrary, you state that there is no national crisis in local government finances. Could you please explain why you believe that to be the case? Mr. EDWARDS. Thanks for the question. I agree with Dr. Zandi that, you know, some States and some jurisdictions are in trouble. Some energy-producing States, like Wyoming and Oklahoma, have seen a drop in revenues. In some cities, like New York City, they are in trouble. Hawaii is in trouble because, you know, they depend on tourism, of course. But, generally, if you look back at the recession 10 years ago, local governments actually did not lose revenues overall, and that is because property tax revenues are very stable. And it looks again like during this recession—if things do not get worse; they seem to be getting better—that for local governments in general that is what we find, because property tax revenues will stay strong. I would also say that, you know, there is continuing to be some money in the pipeline from aid that Congress has already passed. I noticed in a news story a couple days ago the legislature of North Carolina just now appropriated $1 billion from the CARES Act, which was passed 6 months ago. North Carolina is just getting around to actually appropriating the money now, the $1 billion. I also noticed in another news story a couple weeks ago that Idaho used $200 million from the CARES Act to cut property taxes in the State. So, you know, yes, some jurisdictions are in trouble, but there are plenty of other jurisdictions, and I think most jurisdictions, that are going to do fine, frankly, without further aid. Ms. SHALALA. Thank you. I could not disagree more. I think much of that money was obligated. Let me yield and turn to Senator Toomey for 5 or 6 minutes of questioning. We seem to be going on. Senator TOOMEY. Thank you. Ms. SHALALA. Whatever you need. Senator TOOMEY. Thank you, Madam Chair. Let me follow up on this. According to multiple published news reports, last month the Governor of New Jersey proposed a $40 billion budget that is $1.3 billion more than the budget from last year. This summer, the State of Connecticut gave its unionized State workers a 5.5 percent raise. In July, Illinois gave hundreds of millions of dollars worth of pay raises to its workers. Some States, like New York, have delayed a scheduled pay increase, but they have not canceled it because they are expecting a Federal bailout. Mr. Edwards, does that kind of behavior suggest to you dire circumstances that can only be met with additional Federal money? VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00068 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 65 Mr. EDWARDS. I agree with your point there. There are a lot of States here that are—you know, they are not doing what they can to restrain spending in this recession. As I pointed out, Illinois just passed a budget where the general fund was increased over 5 percent. If Illinois had built up a rainy day fund, say, of 10 percent of their spending, that would have been around $4 or $5 billion. That would have easily covered their short-term cash flow problem. And I actually do not think there was a cash flow problem in Illinois. It is just that they were able to borrow at a lower Federal rate. I think that, you know, during a recession, I think State and local governments are learning valuable lessons here. They have to plan ahead. They should lower their debt load in anticipation that we will have another recession down the road, and they should build a bigger rainy day fund. So, you know, State and local governments are not subdivisions of the Federal Government. They have enormous fiscal powers by themselves. And I do not think they ought to be running to Washington whenever they get into fiscal trouble. I think they can solve their own problems. Senator TOOMEY. So let me look at it from another perspective. Mr. Zandi in his testimony, written and oral, tells us that the total projected shortfalls through fiscal year 2022 are between $450 billion and $650 billion if there is a serious second wave of the virus. Now, we had a little bit of a second wave in some States over the summer. That clearly has abated. And economic numbers are coming in much stronger than were projected by just about anyone in recent months. So according to Mr. Zandi, the budget shortfall estimate through 2022 is $450 billion, maybe higher. But how much money have we already sent to State and local governments? I would like to submit for the record a page from the Committee for a Responsible Federal Budget, Moody’s Analytics, September 16, 2020, coronavirus funding for State and local governments, and it gives a breakdown that adds up to $456 billion. That is how much we have already sent to State and local governments, and the projected shortfall by Mr. Zandi and Moody’s Analytics is for a shortfall of $450 billion or up to $650 billion if there is a serious second wave. So, Mr. Edwards, first of all, I do not know if you have drilled down into these numbers, but as you point out, there are many municipalities where property taxes are coming in at or above last year. Do you agree with this range of likely shortfalls? And is there a reasonable likelihood that we have already sent as much money to the State and local governments as their entire shortfall is likely to be? Mr. EDWARDS. Well, first, you know, with respect to Dr. Zandi’s projections, no one knows the future. Perhaps he is right about the size of those shortfalls; perhaps they are lower, as I think. I would say there is a measurement issue here. Again, if you look at the National Conference of State Legislatures’ survey of 37 States from a couple weeks ago, they show that tax revenues will be down 10 percent next year from projected increases. But projected increases were around 6 percent, so that really translates into about a 4 per- VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00069 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 66 cent revenue loss from the 2019 peak. I do not think that is a crisis level of reductions. I think State and local governments ought to be able to handle those sorts of revenue shortfalls. So, again, I think, you know, local governments could come through this pretty well because it does look like property tax revenues will stay up. It is true that in some central business districts the office commercial real estate will fall, but industrial property prices are staying high as well. So, you know, I think local property tax revenues will be fine, and I think States are going to be able to handle the modest State tax reductions. A last point on that, actually. You know, the new CBO Federal projections came out a couple weeks ago, and they have Federal revenue falling—total overall Federal tax revenues falling 5 percent in 2020, 1 percent in 2021; then they are going to start booming again and rise 15 percent in 2022. So the CBO does not think that Federal revenues are really going to fall all that far now, and usually State and local tax revenues do not fall as far as Federal revenues because the Federal tax system is more progressive. So I think State and local governments will be fine. I am hoping they will be fine. But, you know, I could be wrong. We do not know the future. Senator TOOMEY. Thank you. Thank you, Madam Chairman. Ms. SHALALA. Thank you. Commissioner Ramamurti. Mr. RAMAMURTI. Thank you, Madam Chair. Just quickly on the point about a second wave, and, look, we have plateaued in a situation where 1,000 Americans are dying every day, and we are about to enter winter flu season, and we have seen in other countries already a resurgence of the virus. So I think the idea that we have put a possibility of a second wave behind us is not correct. But, look, even though we are 6 months into this crisis and State and local governments are in rough shape, as we have heard from the issuers today, the Fed’s lending program has made only two loans to date. So, Mr. Gee, you represent State and local government financing officers across the country. Do you think the Fed’s State and local lending program has had so little uptake because State and local governments already have all the resources that they need? Mr. GEE. No, sir, I do not. I believe that the reason that you do not see usage centers around the way that the program is structured. As I mentioned earlier during my remarks, the 3-year term is restrictive, as is how the proceeds can be used. State and local governments are basically penalized if they use that liquidity facility, which is why I think you will not see issuers take advantage of it. Mr. RAMAMURTI. Thanks. And, look, we have talked about it in the abstract, but I just want—you are on the ground, so I want to get your sense of what are the concrete impacts of this budget crunch. If State and local governments do not get additional help, either directly through the Federal Government or through this lending program, what are the consequences of that? And who is bearing the brunt of those changes? VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00070 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 67 Mr. GEE. Citizens are bearing the brunt if no action is taken. What we are seeing is crucial services being cut, things like homeless prevention services, public health-related services. So we are not out of the woods yet. I think that some may have too rosy of a viewpoint that things are turning around. Quite frankly, that is not what I am seeing or hearing from my colleagues throughout the country. Mr. RAMAMURTI. Thank you. And, look, there has been plenty of data talking about this idea of a K-shaped recession where people who were already well off coming into the crisis are doing okay, but people with lower incomes are really suffering. And, of course, the cuts to State and local government that you are talking about also tend to fall disproportionately on those folks who are already suffering. So let us talk about how to make this program more useful within the legal restrictions that Congress has created. Mr. Gee, your testimony asks for the Fed to set their rates as low as possible within the law. Mark Zandi, who just testified, said that the rate could go as low as just slightly above the Federal funds rate, which, in other words, is pretty close to zero. How low of a rate would you support? Mr. GEE. I would support anything that is at a market level or more than a market level. You are not going to get participation in the program if the rates are punitive. Mr. RAMAMURTI. Thank you. Mr. GEE. And they currently are. Mr. RAMAMURTI. Thanks. And, Mr. McCoy, I want to bring you in here because your testimony noted that even though you ended up using the Fed’s lending program, the MTA paid an interest rate of 1.9 percent, which was actually quite a bit higher than the 1.3 percent that you paid just before the pandemic hit for a similar type of note. So, by contrast, the Fed’s interventions have already allowed big corporations to actually pay less to borrow now than what they were typically paying pre-pandemic. So let us say that the Fed did the same thing for you that it has done for big corporations. Say that they provided a rate of about 1.3 percent instead of 1.9 percent. How much would that end up saving the MTA over the life of the loan? Mr. MCCOY. Sure. Thank you for the question, Commissioner. So the rate that we received through our MLF issuance saved the MTA $8.235 million over the 3-year maturity. Just to give you more granular detail, a one-basis-point change in the rate is equivalent to $135,000 on that $450 million loan. So it clearly saved us money, and that was a good thing. But, again, you know, I come back to the other part of my testimony where we talked about the revenue loss that we are experiencing. One of the other witnesses talked about, you know, property taxes not being impacted so severely by COVID. Well, here at the MTA we do not receive property taxes. We are not a taxing entity. We rely on fare box revenues, and we have the highest fare box recovery ratio of any public transportation provider in the country. That means when our ridership dropped down by 95 percent due to COVID, our revenue hit was immediate and severe. And we are continuing to forecast severe impacts from reduced ridership well into 2023. So—— VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00071 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 68 dkrause on LAP5T8D0R2PROD with $$_JOB Mr. RAMAMURTI. Thanks, Mr. McCoy. I hear the Chair hitting the gavel. Just to do the math quickly on that point, if you had gotten a rate similar to what you had gotten pre-pandemic of 1.3 percent, doing the math, that looks like that is about a $4 million savings, which I imagine would allow you to keep some people on payroll. It would allow you to potentially offer more transit services or lower-cost services. That money makes a real difference. And so, look, I keep coming back—— Mr. MCCOY. Correct. Mr. RAMAMURTI [continuing]. —To this point. If we are able—if the Fed is able to offer State and local governments just the same type of deal that it is offering corporations right now, it can make an enormous difference in people’s lives. It can make a difference in the lives of children and people with disabilities and seniors and others who are often more dependent on services that the State and local governments provide. That is really what is at stake here. Thank you, Madam Chair. Ms. SHALALA. Thank you. Congressman Hill, I owe you as much time as you would like. Mr. HILL. Thank you, Madam Chair. You owe me nothing, just your friendship. I thank our panelists again for being here. Very interesting testimony. Very informative. I want to begin my questions in this round to talk about this difference that both Mark Zandi referenced and Mr. Edwards on the uneven nature of the economy reopening and the uneven burden around the States, and recognize our States have lots of authorities to control their own destiny, which we have heard about. I have a slide, if I could put that up for our viewing audience and my fellow Commissioners. I looked at tax revenues for different States, and in this instance I decided to look at it based on the impact of the virus. So you can see Arkansas, Texas, New York, and California. These are States that are not normally compared to one another, but I am using approximately 2,000 cases per 100,000 infection rates. But in the case of Arkansas and Texas, those Governors basically kept their States open in fighting the coronavirus, trying to minimize the impact on dislocation of their economies. And you can see that tax revenues in July year over year are up 14.9 percent in Arkansas, 4.3 percent in Texas. And our friends in New York who bore a huge brunt at the beginning of this terrible pandemic, tax revenues year over year in July are down almost 9 percent and in California down 45 percent. I would like to insert that in the record, Madam Chair. Thank you. [The slide follows:] VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00072 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00073 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.035 dkrause on LAP5T8D0R2PROD with $$_JOB 69 dkrause on LAP5T8D0R2PROD with $$_JOB 70 Mr. HILL. Also, Mr. Zandi I think made a very important point about economic concentrations so that if you are heavily in tourism, like Hawaii or my friend from Florida, or in the oil and gas business as noted in his statistics on North Dakota or Oklahoma, you have also additional burdens, not necessarily per se connected to the pandemic, but we have a major dislocation in the oil and gas market partially as a result of the economic shutdown around the world and supply conditions. When you look at June 30, of the 46 States that end their fiscal year in June, 8 States actually had overall tax growth when including personal income, corporate income, and sales tax income. And I also want to highlight that, in addition to the Municipal Liquidity Facility, as Senator Toomey has noted, we have distributed billions of dollars out to our States directly and indirectly. And when you look at both direct and indirect, it is about $700 billion distributed to the States. To that end, Mr. Edwards, let us talk again about your way States can cover their budget shortfalls. I think in your testimony you said that people—or States had built up their rainy day funds to about 13 percent of a typical annual revenue budget. Is that right? Mr. EDWARDS. It is a bit less. I think it is about 9 percent going into this, although there is a measure called ‘‘total balances’’ which are essentially all the extra cash that States have kicking around. That is higher, maybe up around 12 percent. Mr. HILL. And you also noted that you felt many of the States could access the market quite successfully. I was looking at all of our States’ bond ratings before this hearing, and 90 percent of our States are rated double A or better. Wouldn’t they have regular access to the capital markets? Mr. EDWARDS. That is absolutely right, and, in fact, all States would have better access at lower interest costs if they reduced their debt burdens during economic growth years. So, you know, the MTA, for example—I sympathize with the plight of the MTA in New York. It is in terrible trouble. But they would be in a lot better position if New York area policymakers had not let the MTA get so deeply in debt. It is deeply in debt. The interest costs as a share of its cash flow have risen pretty dramatically. States can avoid getting into that position. Some States finance a lot of their capital investment pay as you go. Most roads and highways in the United States are financed mainly pay as you go, meaning gas tax revenues. So if you look at some States, like Nebraska, they have very low debt loads. That really bodes well for those sorts of States. When you go into a recession, they are in a much better financial position, it seems to me. Mr. HILL. Thank you. I will also note for the record, Madam Chair, that Illinois, of course, as we have talked about here, has accessed the market successfully and participated in the Municipal Liquidity Facility. It has the lowest rating of the States I reviewed at BBB. New Jersey, which was just reported to us this morning, is entering the market and has an expanded budget, is single A minus; Kentucky and Connecticut at single A; and Senator Toomey’s home State of Pennsylvania at A-plus. So essentially all of our States, the 90 percent of States that are double A or better VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00074 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 71 or these States that even have slightly lower rating—modestly slightly, I might add—have all accessed the market quite successfully. Thank you, Madam Chair. I yield back. Ms. SHALALA. Thank you, Congressman Hill. We will repeat our order of questioning, and each Commissioner will now have a second round of questions for these witnesses. I will start by recognizing myself for 5 minutes. Dr. Zandi, according to Mr. Edwards’ testimony, economic conditions in the municipal bond market are normalizing. I represent Miami. He clearly missed my community. And he also said it is not fair or prudent to increase government borrowing and spending further. Among other things, he cites projected versus actual State and local revenues. Do you agree with his assessment of the economic outlook and his statement that additional Federal assistance is not fair or prudent? And could you repeat your recommendations with regard to the Municipal Liquidity Facility and additional Federal assistance or otherwise? Mr. ZANDI. Sure. Well, thank you. No, I think the budget situation is very serious, and it is a script being written, that there is a lag. We are already seeing a lot of the revenues get pummeled here, but there is a very significant lag between what is going on in the economy and when it shows up in tax revenue, you know, particularly like income tax revenue. A lot of what we are observing now is based on final settlement payments in 2019 income when the unemployment was 3.5 percent and wage growth was strong. It does not reflect what is happening in 2020. So I think as we get more numbers toward the end of this year going into next year, we are going to see significant declines in income tax revenue in more and more States across the country. This is an ecumenical problem regionally. It is not just, you know, a few States. It is going to be—much of the country is going to be involved in this. The same is true for property tax revenue. That is a long lag. You know, the problem this go-around is that house prices as much—that was the problem in the financial crisis. This go-around it is going to be commercial real estate values, and it is going to take a while for that to flow through and it is going to have a big impact on revenues for lots of local governments across the country. And I think it is clearly evident—I mean, we can pick anecdotes across the country, but for me, the thing that encapsulates the stress most vividly and clearly is that State and local governments in the last 6 months have reduced payrolls by 1.1 million jobs, 6 percent of their workforce. And I think in the last couple, 3 months they have delayed those cuts because they hoped and they believed—because most everyone believed—that they would get some additional Federal Government aid to help support them. And now as it becomes increasingly clear that that aid is not coming through, they are not going to get that aid, I think these cuts are going to become quite significant. So we are going to see how things go here pretty quickly, I think, over the next few months, certainly by the end of the year, how se- VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00075 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 72 rious this is and how much economic damage it is going to cause to communities across the country. Finally, I would say that $450 billion low-end estimate of the budget shortfall through fiscal year 2022 is on top of the Federal Government support that has already been provided. So in those calculations, that is history; that is in the data. It is $450 billion on top of that, assuming no significant increase in infections going forward, so it is very significant. So in that context, what I just described to you, that outlook, I think it is critical that we look for other tools to try to support State and local government in the Municipal Liquidity Facility. Here is what I would do. The first thing I would do is extend it, because, you know, this is a script being written. The pandemic is not going to be over on December 31, 2020. We have to extend it. Secondly, we have to lower the rate. The Fed is willing to do this. They lowered it once. I think they need to lower it again, make this less punitive so it opens up access. Third, extend the term. You have already heard from the other folks that are on the ground here that 36 months is just not practical. That means it is not particularly useful. Fourth, I would really think about expanding out what the money can be used for. And, fifth, you know, think about how you can defer some of these payments to make it a little bit more attractive. Here is the thing: I could be wrong. Actually, I hope I am wrong. You know, hopefully the world, our economy, the fiscal situation turns out a lot better than I am anticipating. But, look, I fear that I am right; and if I am right and we are not prepared for it—if we do not prepare for it—you know, Policymaking Economic 101. When you have a lot of uncertainty, you press on the accelerator. You do more than you think is necessary because you do not know. And I assure you we do not know. This pandemic is still ongoing. Ms. SHALALA. Thank you. Senator Toomey. Senator TOOMEY. Thanks, Madam Chair. Mr. Gee, we took a look at where the St. Louis Sewer District debt is trading in the secondary markets, and according to our sources here, it looks like they are trading at the lowest yields in at least 5 years. Paper with 3 years’ remaining life is trading at 21 basis points. And you suggested that the MLF should be offering rates below what the market is offering. But, obviously, this whole program is ultimately backstopped by U.S. taxpayers. How much lower than 21 basis points should taxpayers be lending money to the St. Louis Sewer District when it can borrow money for 21 basis points in the capital markets? Mr. GEE. Well, sir, I am not suggesting that taxpayers lend money specifically to my agency. I was speaking in terms of State and local governments, which may not be in as good financial shape as our agency. We are a triple A-rated utility, so the conditions that we are currently facing may not be as dire for us as they are for some of my colleagues at the State and local governments. But I think what we are asking for is to simply make the MLF competitive. And as it exists right now, it is not competitive. So if you are actually looking for entities to utilize this facility, then I VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00076 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 73 believe that the rate structure needs to be at market rates or lower. Senator TOOMEY. I cannot disagree with the notion that if the goal is to get people to borrow, you have to give them a better deal than what they can get in the capital markets generally. That is just not my goal. My goal was always to ensure that we would have a liquid functioning market, and we have that. Mr. Edwards, two questions. The first is we have never had an MLF before, but we have had recessions before. We have had all kinds of disasters before. How have States and municipalities managed through difficult times in the past? That is one question. Then the second is we have a very wide range among our States and certainly among municipalities in terms of expenses per capita, in terms of tax regimes and tax revenue per capita. And the people of the various States get to decide through the elections they hold what kind of regime they want. If the Federal Government is going to be a sort of permanent backstop, bailout mechanism, how does that change the mechanism of accountability in State government? Mr. EDWARDS. That is a great question, and one of the things I am really concerned about here is the incentives for State and local governments going forward. The more the Federal Government gets involved in this sort of emergency loan to State and local governments, the less incentive they have to be prepared for the future. As Dr. Zandi noted, most States did build up substantial rainy day funds after the last recession. California, for example, was really hard hit during the recession a decade ago, and to their great credit, they built up a very large rainy day fund. So that is great. So you have to think about forward-looking incentives here. To go back to some of the previous discussion, people have compared the Federal Reserve’s mechanisms for businesses and governments. But there is a basic difference here in that governments can always raise tax revenue. They have fiscal power. They can always issue debt, and they can always trim spending. Businesses during recessions, especially when State and local governments are mandating closures of millions of small businesses, they often do not have a choice. They get into terrible fiscal and financial trouble because the revenues just disappear in front of their eyes. Governments are really never in that situation because they can always rely on taxation. And for local entities like the MTA, I think the first backstop ought to be State-level governments and not the Federal Government. I think State-level governments have enormous fiscal power, and if their local governments get into trouble, I think that should be mainly their responsibility. Senator TOOMEY. Thank you. Madam Chair, I yield back my time. Ms. SHALALA. Thank you. Commissioner Ramamurti. Mr. RAMAMURTI. Thank you, Madam Chair. Mr. Edwards, you have testified today that the Federal Government should not help State and local governments in part because ‘‘debt-financed spending by the Federal Government pushes costs forward onto younger generations of Americans.’’ You actually made the same argument in 2008 when you opposed Federal aid VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00077 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 74 for State and local governments in the midst of that recession. You wrote, ‘‘Spending on a stimulus package would be funded by additional government borrowing, and the burden of that borrowing would fall on young people and future taxpayers.’’ You wrote that in a section you titled ‘‘Rising Federal Debt is Fiscal Child Abuse.’’ Are those your words? Mr. EDWARDS. Yeah, that is right. I believe it is. Mr. RAMAMURTI. So that phrase, ‘‘fiscal child abuse,’’ in my view is a pretty shocking thing to say, especially when you look at what States are being forced to do right now because they are not getting Federal aid. Here are just some of the examples: Alabama and California are cutting funding for early childhood education programs; Wyoming is cutting $10 million from its public pre-school program for kids with disabilities; Oregon is delaying a program to help children from low-income families with mental health issues; and Missouri, New Jersey, and Texas are slashing funds and laying off workers dedicated to protecting children from actual child abuse. All of these changes will have lasting effects on this generation of kids, especially the most vulnerable among them. So, Mr. Edwards, how much actual harm to kids today are you willing to tolerate based on your concern about so-called fiscal child abuse? Mr. EDWARDS. Those children will grow up, and Federal, State, and local governments have been enormously irresponsible by getting the United States enormously into debt. The Federal Government has $20 trillion of bond debt now. Those costs are being pushed forward, so in the future either those spending programs that you mentioned will have to be cut or taxes will have to be raised. An increasing share of the earnings of young Americans in the future will have to go, for example, to pay the foreign creditors, which reduces the U.S. living standard—— Mr. RAMAMURTI. Okay, so, look, Mr. Edwards—I am sorry. My time is short. But it sounds to me like your answer is you are going to accept quite a bit of harm to kids today based on the concern that, I do not know, I guess the debt will go up, and maybe corporations in America will have to pay slightly more in taxes in the future. Look, it is incredibly cheap for the Federal—— Mr. EDWARDS. Those programs you mentioned are State programs, so the State governments, they should make—they should balance the costs and benefits of funding those programs. Mr. RAMAMURTI. Mr. Edwards, look, the point I am making—— Mr. EDWARDS [continuing]. —Federal issue—— Mr. RAMAMURTI. Excuse me, sir. The point I am making is that it is incredibly cheap for the Federal Government to borrow right now. The interest rates are under 1 percent for a 10-year repayment term. And I think it is, frankly, perverse to cite your concern for children to justify cuts that will do actual harm to children right now. And I think it is especially perverse coming from a lot of the same folks who happily supported adding $2 trillion in debt a couple years ago to hand tax cuts to big corporations and the rich. But, look, even setting aside this moral question of whether we should make our kids suffer lasting harm today rather than borrow VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00078 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 75 dkrause on LAP5T8D0R2PROD with $$_JOB at record low interest rates, it is also just terrible economic policy. Experts across the political spectrum agree that every dollar of Federal aid to State and local governments produces more than a dollar’s worth of economic growth. Mr. Zandi has said that. Glenn Hubbard, who was the Chair of President George W. Bush’s Council of Economic Advisers, has said that. And the nonpartisan Congressional Budget Office has said that. They have each found that a dollar of State and local aid produces about $1.20 or $1.30 in growth. But, Mr. Edwards, you dispute that point in your testimony, citing a single study. You write, ‘‘A 2019 review of the academic literature by the University of California’s Valerie Ramey suggests that a dollar of Federal aid would actually result in less than a dollar of growth.’’ Is that right? Mr. EDWARDS. Yeah, that is absolutely right, and it was not just a single study. She reviewed all the academic economic studies over the last decade, and she concluded that the multiplier for government spending was probably less than one. There is no certainty here, but she thought probably. I would say also—— Mr. RAMAMURTI. Okay. Thank you. Mr. Edwards, thank you. That is all I wanted to know. But, look, I actually took a careful look at the study, and it also says later that when monetary policy is very accommodative—in other words, when interest rates are low and will be low for a long time—government spending in the United States can generate $1.50 or more in return for every dollar. So as I am sure you know, Mr. Edwards, interest rates are currently at zero, and the Fed announced yesterday that it was percentage to keep them that through 2023. So do you agree that the study you have cited actually suggests a return of far more than a dollar on every dollar we dedicate to State and local aid right now? Mr. EDWARDS. No. I think that there was a lot of uncertainty with what she said about—she called it ‘‘zero lower bound.’’ Her main central conclusion was that the multiplier was from about 0.6 to 0.1. And if you look at her other studies on her Web page over the last decade, similarly, you know, they suggest perhaps lower multipliers than other people have found. Dr. Zandi—— Mr. RAMAMURTI. Thank you, Mr. Edwards, just because my time—and I want to be respectful of the Chair. Look, I agree that there was some uncertainty, and I wanted to be extra sure about all this. So yesterday I called up the author of the study, Professor Ramey, to ask her specifically what she thought, and she wrote me a short letter in response, which I would like to submit for the record. And Ms. Ramey says, ‘‘My estimate of the likely multiplier for Federal grants or loans to State and local governments, conditional on the current economic and policy situation, is likely to be somewhere between 1.2 and 1.5.’’ So I am glad that we resolved that question. [The letter follows:] VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00079 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00080 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.036 dkrause on LAP5T8D0R2PROD with $$_JOB 76 dkrause on LAP5T8D0R2PROD with $$_JOB 77 Mr. RAMAMURTI. Look, I am running short on time, but if this is the best case against more Federal support to State and local governments, then I think that position is pretty laughable. Thank you, Madam Chair. Ms. SHALALA. Congressman Hill. Mr. HILL. Thank you, Madam Chair. Mr. Gee, let me express all of our thanks to you for helping navigate COVID–19 for Metro St. Louis, and also thank you for your leadership for government finance officers across the country. I cannot think of a more challenging period or more interesting period for that work. We have talked a lot about the Municipal Liquidity Facility today, but we have also talked about the billions of dollars that have been sent to the States. I know listening to the Missouri congressional delegation, there has been some complaining about the Governor of Missouri’s sharing of that money with State and local governments. And I note in the U.S. Treasury IG report that about 26 percent of the money sent to Missouri has been spent to date. But I looked at St. Louis County, particularly, that got $173 million directly to St. Louis County, and yet in that same IG report, only about 6 percent of it has been spent, $11 million. And I wondered, has St. Louis County shared any of the CARES Act money with you in your official capacity in the sewer and water aspect of Metro St. Louis? Mr. GEE. Well, thank you, sir, for the question. Let me just start off by pointing out with governmental entities, there is a difference between spent and encumbered. I would argue that the majority of the funds have been encumbered, meaning that they have been earmarked for specific use. It is true that you may have instances in which those dollars have not been spent, but the funds have been encumbered. With respect to your question regarding the St. Louis County government, we have not requested any CARES Act funding from that governmental entity. I cannot really speak to their finances. I am not part of St. Louis County government. Mr. HILL. Have you asked for any CARES Act funding from any entity in Missouri, the city of St. Louis, the county of St. Louis, the State of Missouri? Mr. GEE. We have not requested any CARES Act funding. We have requested some funding from FEMA that would cover some of our PPE-related expenditures. Mr. HILL. Right, well, I recognize your point, and I accept it on encumbered. That number is a moving target in the States. They will initially legislatively approve a large allocation and then end up not needing it, and so that number is a moving target. In Arkansas, it is well over 80 to 90 percent considered by the legislative council on what they would like to spend the money on, but they have spent far less than that. Has the State of Missouri, to your knowledge, allocated money to the smaller cities and counties outside St. Louis? To your knowledge, has the Governor allocated money for their use? Mr. GEE. It is my understanding that funds have been allocated to the counties and the cities, and the counties have allocated VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00081 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 dkrause on LAP5T8D0R2PROD with $$_JOB 78 funds to some of the smaller cities that were not eligible for a direct allocation. Mr. HILL. Thank you. Dr. Zandi, to you, thanks for all your work with our States. I believe we use your forecasting model in the State of Arkansas for our revenue forecasts, so we are grateful for your influence across a lot of economics in our country. And you have been describing the stress that you see in State and local revenues going out to 2022. Do you think the U.S. economy will rebound and have a positive GDP growth in the fourth quarter of this year? And, also, do you think it will have a GDP increase, positive increase, for the calendar year of 2021? Mr. ZANDI. Well, I think it depends on two things, one, the pandemic and how it unfolds, but let us just put that to the side and let us assume that the pandemic remains roughly where it is today in terms of infections and deaths. But the second is whether Congress and the Administration are able to come together and pass some additional fiscal rescue support to the economy in the next couple, 3 weeks before you go away for recess. If you do and it is a substantive package that includes aid to State and local government, then I think we will get a positive quarter. We will get growth that is somewhere 3, 4, 5 percent annualized in Q4. If you do not, if there is no additional support, I think we will likely go back into recession by the end of the year with negative job numbers and rising unemployment. So I think a lot depends on what happens in Washington, D.C., over the next 2 to 3 weeks. Mr. HILL. Considering that recessionary risk and the pandemic risk, would you recommend in 2021 a $4 trillion increase at the Federal Government level? Mr. ZANDI. I am sorry. A rescue package of $4 trillion? Mr. HILL. No. Would you recommend a tax increase at the Federal Government level of $4 trillion in fiscal year 2021? Mr. ZANDI. No. I think until the economy is back on its feet and we are, you know, closing in on full employment, I think it is important for the Federal Government to continue to provide significant support both through significant additional spending and I would not raise taxes in any significant way until we are close to full employment. Once we are at full employment, I do think we need to pivot it, and we need to really focus on our long-term fiscal situation as a Nation. That will require tax increases and government spending will shrink, both—— Mr. HILL. Thank you very much. I yield back. Mr. ZANDI. On that I think we need to be very aggressive. Thank you. Ms. SHALALA. Thank you. On behalf of the Congressional Oversight Commission, I would like to thank all of our witnesses for their time and testimony today. A special thanks to the Senate Finance Committee for allowing us to use their hearing room. I also want to thank our Commissioners, my fellow Commissioners, for their participation today and for their thoughtful questions; and, of course, our staffs for their assistance with this hearing. VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00082 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 79 dkrause on LAP5T8D0R2PROD with $$_JOB Commissioners may also submit followup written questions for the record. This hearing is now adjourned. [Whereupon, at 11:44 a.m., the Commission was adjourned.] VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00083 Fmt 6633 Sfmt 6602 C:\41489\41489.XXX 41489 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00084 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.037 dkrause on LAP5T8D0R2PROD with $$_JOB 80 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00085 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.038 dkrause on LAP5T8D0R2PROD with $$_JOB 81 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00086 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.039 dkrause on LAP5T8D0R2PROD with $$_JOB 82 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00087 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.040 dkrause on LAP5T8D0R2PROD with $$_JOB 83 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00088 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.041 dkrause on LAP5T8D0R2PROD with $$_JOB 84 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00089 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.042 dkrause on LAP5T8D0R2PROD with $$_JOB 85 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00090 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.043 dkrause on LAP5T8D0R2PROD with $$_JOB 86 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00091 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.044 dkrause on LAP5T8D0R2PROD with $$_JOB 87 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00092 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.045 dkrause on LAP5T8D0R2PROD with $$_JOB 88 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00093 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.046 dkrause on LAP5T8D0R2PROD with $$_JOB 89 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00094 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.047 dkrause on LAP5T8D0R2PROD with $$_JOB 90 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00095 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.048 dkrause on LAP5T8D0R2PROD with $$_JOB 91 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00096 Fmt 6633 Sfmt 6621 C:\41489\41489.XXX 41489 Insert 41489A.049 dkrause on LAP5T8D0R2PROD with $$_JOB 92 93 VerDate Sep 11 2014 07:31 Nov 07, 2022 Jkt 041489 PO 00000 Frm 00097 Fmt 6633 Sfmt 6011 C:\41489\41489.XXX 41489 Insert 41489A.050 dkrause on LAP5T8D0R2PROD with $$_JOB Æ
@FedFRASER