NYT's Alan Rappeport and Jeanna Smialek summarize political disagreements surrounding federal stimulus aid in Clash Over Municipal Loan Program Delays Stimulus Report.
The Municipal Liquidity Facility, operated by the Fed and supported by the Treasury, is an area of significant disagreement. Democrats argue for more federal aid to states and municipalities, Republicans against. So far, only Illinois and the Metropolitan Transportation Authority have used the MLF, borrowing a total of $1.65 billion compared to a Facility size of $500 billion.
"Democrats and some economists have argued that the Fed and Treasury should be more generous, offering lower rates and longer payback terms.
"The Fed, for its part, has pointed out that the mere existence of the program has helped calm the market for municipal debt, so that states and localities have been able to sell bonds at extremely low interest rates.
A more fundamental issue is that state and municipal governments are facing sharp drops in revenues and are legally prohibited from running budget deficits. In addition to pushing for the Fed to offer loans with lower interest rates and longer repayment periods
"Another proposal would grant state and local governments more flexibility so that the money could be used for capital infrastructure projects, not just for certain cash flow purchases."