The $900 billion coronavirus relief bill that would extend economic lifelines to thousands of struggling small businesses, 14 million unemployed Americans and 17 million renters facing eviction could hit a snag on a provision that its main sponsor says “could be seen as redundant.”
On a press call Thursday, Sen. Patrick J. Toomey, R-Pa., said preventing the next Treasury secretary and the Federal Reserve from relaunching five emergency credit facilities next year was “the most important thing to me” in the COVID-19 rescue package. The facilities are set to end on Dec. 31.
“Maintaining the integrity of the role of the Fed, preventing the Fed from being politicized, from being misused, from becoming an allocator of credit and America’s biggest commercial bank, that’s the most important thing,” said Toomey, who is in line to be the top Republican on the Senate Banking Committee next year.
At the onset of the pandemic, the Fed launched a series of emergency lending facilities to rescue financial markets that were drowning in uncertainty, using the Treasury Department’s Exchange Stabilization Fund to backstop the loans those programs made. Congress gave Treasury $454 billion in a March relief package to top up the fund and support the creation of additional Fed credit facilities. Just creating the programs was enough to calm the markets, and the facilities were ultimately little used, leaving $429 billion unspent.
Treasury Secretary Steven Mnuchin announced he would end most of those programs at the end of the year and ask for the untapped funds to be returned to the general fund, saying that’s what the March law required. Toomey, who sits on the Congressional Oversight Commission that monitors the Fed facilities, has strongly supported Mnuchin.
But Democrats have called foul, saying Mnuchin’s decision to end the facilities, which was announced after the election, is aimed at hurting President-elect Joe Biden’s ability to respond to the pandemic’s economic fallout. Democrats have also called on the Fed and Treasury to make the credit facilities’ terms more favorable to borrowers like mid-sized businesses and cash-strapped state and local governments in order to provide more economic support — a move Mnuchin and Toomey have resisted, saying that the Fed should only operate as a lender of last resort.
The Main Street Lending Program has issued about $6 billion in loans, while the Municipal Liquidity Facility has only issued two loans, totaling $1.65 billion.
Toomey says the language he wants added to the COVID-19 relief package would ensure the law is followed when Biden takes office in January.
“It's not acceptable for anybody to decide that they're going to circumvent this law, restart these programs and turn them into something that they were never intended to be,” Toomey said. “That's really why we've got this language, which in some ways could be seen as redundant, but it eliminates any possibility that anyone could argue that these programs could be restarted.”
But the Congressional Research Service said in a report Thursday that the law doesn't require the Fed facilities to expire at the end of the year, but that the Treasury couldn't add any backstopping funds next year.
Toomey said his proposal would prevent the Term Asset-Backed Securities Loan Facility, the Municipal Liquidity Facility, the Main Street Lending Program and the Primary and Secondary Market Corporate Credit facilities from being restarted, but would let the Fed relaunch others, if needed.
Democrats say Toomey’s proposal goes beyond that, and would limit the Fed and Treasury’s ability to respond to future economic crises. While the March law provided extra money to backstop the Fed facilities, they were launched under existing powers known as 13(3) authority, which requires a supermajority of the Fed board and the Treasury secretary to agree on establishing emergency lending programs.
Democrats see long-term constraints
Even though Mnuchin’s decision means the next Treasury secretary and the Fed won’t have the extra funds Congress provided to backstop new facilities, they could create them using money normally available in the Exchange Stabilization Fund. Toomey’s proposal would block that, said Bharat Ramamurti, a member of the Congressional Oversight Commission.
"[Toomey's proposal] says that the Fed and Treasury — using any other funding from any other source — can't create a facility that looks anything like these lending programs, forever,” he said. “That would not just limit the ability of the Biden administration to continue to address the current economic crisis, but really tie the Fed’s hands when it comes to their ability to address future financial crises.”
“I just think it's a radical thing to push for inclusion into a package like this with no hearings, no vetting, no debate,” Ramamurti added, calling this the largest proposed change to the Fed’s 13(3) authority since the Dodd-Frank financial regulatory overhaul in 2010.
On the press call, Toomey took umbrage to the suggestion that he was trying to undermine the incoming president. “Quite contrary to what some of my Democratic colleagues have suggested, this is not at all an effort to in any way hamstring the Biden administration or weaken our economy. That is a ridiculous notion,” he said.
Toomey said his intent was instead to preserve Congress’ control over fiscal measures and preserve the Fed’s political independence.
“It is not the role of our central bank, the Fed, to engage in fiscal policy, social policy or allocating credit, and if we went down that road — as my Democratic colleagues seem to want — we would be politicizing the Fed and we would destroy the Fed’s independence," he said.
There is a lot riding on the relief package negotiations.
Small businesses in hard-hit sectors like restaurants and hospitality have had to rely on donations to survive as rising COVID-19 cases make indoor dining and travel dangerous. More than 17 million renters could lose their homes when a federal eviction moratorium expires on Dec. 31, according to the National Low-Income Housing Coalition. Thursday’s initial claims report from the Labor Department showed that 13.9 million Americans are receiving pandemic-related unemployment benefits that end Dec. 26.
The relief bill as it currently stands would provide new Paycheck Protection Program loans and extend the federal unemployment benefits while also boosting them $300 a week.
During Thursday’s press call, Toomey emphasized that his position enjoyed “a very, very broad agreement among Republican senators,” and was also shared by Mnuchin. Senate Banking Chairman Michael D. Crapo of Idaho also said he was strongly supportive on Thursday.
It’s unclear whether House Republicans feel the same way, though. In a press release Wednesday, House Financial Services Committee ranking member Patrick T. McHenry, R-N.C., indicated an openness to continuing some of the business-focused lending facilities supported by the Treasury’s Exchange Stabilization Fund.
“While the ESF money served as a key insurance policy in unknown times, we now have nine months of experience, allowing us to better understand where targeted relief is still needed,” he wrote, adding that the money should not be used to bail out states or cities. “It is clear a much smaller ESF is warranted. We should come together to repurpose the ESF funding to provide targeted support for our small businesses and their workers.”
McHenry’s office did not respond to a request for clarification.