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Chapter 6 discusses the federal government’s response to state and local fiscal problems during the COVID-19 pandemic. Topics covered include the size and economic impact of several major rounds of federal aid to states and cities, the potential effect state and local aid had in creating moral hazard, and the conditions put on federal aid. The chapter also discusses an innovation in this policy area during the pandemic response, the creation of the Federal Reserve’s Municipal Liquidity Facility. It shows the effect the Facility had on the bond market, analyzes why it was only used by two jurisdictions, and explains why it was structured in a more limited way than many political figures wanted. |
