House progressives call on Fed to loosen purse strings for state loans

Reps. Schakowsky, Garcia join in letter seeking COVID relief

U.S. Reps. Jan Schakowsky and Jesus “Chuy” Garcia are calling for the Federal Reserve to provide relief to states and other local governments over lost tax revenue in the COVID-19 pandemic. (One Illinois/Ted Cox)

By Ted Cox

As congressional leaders continue to debate an additional coronavirus relief package, House progressives are calling on the Federal Reserve Bank to step in and provide low-interest loans to states and other local governments hurting from lost tax revenue in the pandemic.

U.S. Reps. Jan Schakowsky of Evanston and Jesus “Chuy” Garcia joined members of the House Progressive Caucus Wednesday in sending a formal letter to Federal Reserve Chairman Jerome Powell calling on the national bank to provide the same sort of low-interest COVID-19 relief loans to states that it’s already providing to major business interests.

Gov. Pritzker has made repeated calls for federal aid to state and local governments, and he echoed that Wednesday in a coronavirus briefing at the Thompson Center in Chicago. The governor said all states, whether governed by a Democrat or a Republican, will need help making up for lost tax revenue, and he called on the Illinois congressional delegation — again, both Republicans and Democrats — to support it in the next coronavirus relief package.

Without that aid, he said, “We’re going to have to make drastic cuts” to essential social services, adding, “This will be painful — extraordinarily painful.”

“This will be painful — extraordinarily painful.”

Gov. Pritzker on state cuts required if they receive no additional federal COVID-19 relief. (Illinois.gov)

The letter agreed, stating that “there have been 1.5 million public-sector layoffs since March,” and adding that failing to provide COVID-19 relief now risks inflicting long-term harm to the U.S. economy: “Unless the Fed aligns its assistance to states and cities with its emergency lending to the private sector, mass unemployment and emergency conditions will persist for years.”

The representatives threw Powell’s own words back at him, quoting his recent congressional testimony: “It will hold back the economic recovery if [states and municipalities] continue to lay people off and if they continue to cut essential services.”

The letter cited that “a recent report from the Center on Budget and Policy Priorities predicted that state budget shortfalls from (fiscal year) 2020 to 2022 will total an estimated $615 billion.”

The letter stated that a $500 billion fund created by the earlier CARES Act federal relief package was insufficient. The Municipal Liquidity Fund was intended to provide state and local governments with relief, but it has continued to charge interest on the loans. Illinois was the first state to draw on the fund, borrowing $1.2 billion in June, in part to make up for delayed income-tax revenue when the filing deadline was pushed back to July this year, but the Fed charged an interest rate of 3.82 percent. As of late last month, Illinois was still the only state or city government to accept those terms; there were no other takers.

“At present, the harsh terms and penalty rates for the MLF make it functionally unusable for the vast majority of the state and local governments that are technically eligible, which severely undermines the program’s intent to help states and cities struggling from unprecedented financial hardship,” the letter states. It goes on to point out — as One Illinois already has on several occasions — that the Fed is giving favorable treatment to major corporations and big business by comparison.

The New York Times reported that Charles Evans, president of the Federal Reserve Bank of Chicago, admitted just this week: “The terms of borrowing are not particularly generous” for the fund.

“It must be noted that many of the Federal Reserve’s corporate lending programs contain terms that are far more favorable than those included in the MLF,” the letter states. It cites “far cheaper pricing, far longer terms, and even payment deferrals for corporations borrowing from the Main Street Lending Program, the Secondary Corporate Credit Facility, and the Term Asset-Backed Securities Loan Facility.”

The letter simply calls on the Fed to provide the same favorable loan terms to states and cities that it’s already providing to major corporations and big business.

The letter was signed by 50 members of the House, including Schakowsky and Garcia, as well as the Squad, the popular name for the progressive freshman Congresswomen Alexandria Ocasio-Cortez of New York, Ilhan Omar of Minnesota, Ayanna Pressley of Massachusetts, and Rashida Tlaib of Michigan.

House and Senate leaders continue to debate another coronavirus relief package with representatives of the Trump administration, but thus far Republicans have been resistant to providing states with additional relief.