Fed Adds Muni Funds To Emergency Stimulus, Treasury Extends Tax File Deadline

The Federal Reserve announced on Friday that it expanded its emergency plan to provide liquidity to money market mutual funds, by now permitting the purchase of assets from single-state and other tax-exempt municipal money market funds.

“Through the Money Market Mutual Fund Liquidity Facility, or MMLF, the Federal Reserve Bank of Boston will now be able to make loans available to eligible financial institutions secured by certain high-quality assets purchased from single state and other tax-exempt municipal money market mutual funds,” the Fed stated.

On Wednesday, the central bank had formed MMLF to alleviate pressure from prime money market funds which were witnessing large institutional customer withdrawals. The Treasury Department also said it will provide $10 billion of credit protection.

Administered by the Boston Fed, the program will offer risk-free loans to banks that will buy various assets from prime money market funds -- the assets would then be deposited with the Fed as collateral. By including short-term municipal bonds, city and state governments may now find it easier to raise funds.

Muni bonds have been hurt by the coronavirus epidemic as local governments fear their resources will be overwhelmed by people seeking medical care. These governments will also likely lose tax revenue as companies tell workers to stay home.

Diane Swonk, chief economist at Grant Thornton, praised the measure, by tweeting: “Fed provides liquidity for muni bond market. Pulls the trigger on purchases of municipal bond purchases. States bearing unusual burden of costs associated with combating COVID-19… Message to markets. Fed willing to work outside of box -- don’t bet against them.”

Some analysts were more skeptical.

"It’s not a panacea for a sector that many are worried about given the likely financial burdens that are set to hit state and local governments," cautioned Cameron Crise of Bloomberg.

Separately, the U.S. Treasury Secretary extended the filing deadline for federal taxpayers.

"We are moving Tax Day from April 15 to July 15," Secretary Steven Mnuchin tweeted. "All taxpayers and businesses will have this additional time to file and make payments without interest or penalties."

Mnuchin said he was following President Donald Trump's suggestion.

The White House earlier had said that it would defer tax payments for 90 days but that people would still need to file by April 15.

Mnuchin added that Americans expecting refunds should still file taxes now.

"I encourage all taxpayers who may have tax refunds to file now to get your money," he wrote.

Senate Majority Leader Mitch McConnell (R.-Ky.) also wanted a tax deadline extension in connection with the GOP’s new economic stimulus program.

Internal Revenue Service data revealed that nearly 68 million people had filed by March 6 and that nearly 53 million have already received their refunds.

Also, earlier in the week, Mnuchin said that individual and small businesses would be able to defer payments of up to $1 million and corporations could defer up to $10 million without suffering interest or penalties.

The new deadline does not apply to state tax filing, although in California, individuals now have until June 15 to file and pay their state taxes.