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The program was set up in the early days of the pandemic to help steady the then-rattled world of municipal finance. Now, just one government agency still has debt from it outstanding.
Illinois has paid off the remaining balance on a $2 billion loan it took under an emergency lending program for state and local governments set up by the Federal Reserve in the early days of the coronavirus pandemic, the state's comptroller said Wednesday.
Illinois Comptroller Susana Mendoza said the final payment totaled $302 million. The state was initially scheduled to pay the loan off by December 2023 in three installments, but Mendoza said doing so ahead of time saved Illinois an estimated $82 million in interest costs. The interest rate on the debt was 3.42%.
The state was one of two government borrowers that accessed loans during 2020 through the Fed's Municipal Liquidity Facility. The other was New York's Metropolitan Transportation Authority.
An MTA spokesman confirmed by email on Wednesday that the full balance of two loans it secured through the facility was still outstanding, as shown in a Federal Reserve disclosure report from Dec. 13. He also said that the authority had no further information to add about the retirement of the debt.
One of the MTA's notes totals $2.9 billion, the other around $450 million. Both have 1.93% interest rates.
Mendoza, along with Illinois Gov. J.B. Pritzker and state legislative leaders, unveiled a plan last year to use stronger than expected state revenues to pay off Illinois' MLF loan. No federal relief dollars were used to repay the debt, only state revenues, Mendoza's office said.
“With this early repayment, we take another important step toward restoring fiscal stability and predictability to Illinois,” Mendoza said in a statement.
The state last year paid off a separate note it issued through the MLF worth $1.2 billion.
Illinois has been known in recent years for its financial woes, including unwieldy pension liabilities and a bill backlog that Mendoza's office says is now in the $3.8 billion range, compared to nearly $17 billion in the 2017 timeframe.
The Municipal Liquidity Facility got up and running in May 2020, near the onset of the Covid-19 outbreak when a wave of uncertainty and turmoil hit government budgets and the municipal bond market. It closed to state and local borrowers in December 2020.
The focus of the Fed facility was not long-term bonds, like those used to finance infrastructure, but rather shorter-term “notes” governments depend on to maintain liquidity and pay their bills. Three years was the maximum lifespan for notes issued under the program.
In general, experts described the program as an important backstop during the early months of the pandemic, saying it helped to stabilize the shaken municipal bond market and to ensure state and local governments had a place to turn if they ran into trouble accessing short-term loans needed to cover their expenses.
Bill Lucia is a senior editor for Route Fifty and is based in Olympia, Washington.