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Toomey Fed demand rocks coronavirus relief bill talks

Dispute threatens delicate relief bill negotiations with midnight government funding deadline approaching

Negotiations on a coronavirus aid package appeared to hit an eleventh-hour setback Friday when Democrats accused Republicans of making a late demand to block Federal Reserve lending programs.

The impasse was also threatening to trigger a partial government shutdown over the weekend because the latest stopgap spending law expires at midnight Friday. House leaders were prepping a short-term stopgap measure to get at least through Sunday with the broader aid package and fiscal 2021 omnibus appropriations bill still under development.

Sen. Josh Hawley, R-Mo., said he would block the consent needed for swift Senate passage of a stopgap, however, unless congressional leaders can provide details of the emerging aid agreement and what the proposed tax rebate checks he and others are seeking would look like.

House Majority Leader Steny H. Hoyer, D-Md., said on the floor that plans and schedules should stay flexible. He recessed the chamber until 5 p.m. while talks continue. “We’re hoping in the next three hours we’ll have a clearer picture of where we are,” Hoyer said.

The biggest immediate hurdle seemed to be a push led by Republican Sen. Patrick J. Toomey of Pennsylvania to block the next administration and the Federal Reserve from relaunching several expiring lending programs next year. Democrats said the move could hamper the economic recovery and hamstring the incoming Biden administration.

“We almost have a bipartisan COVID package, but at the last minute Republicans are making a demand that WAS NEVER MENTIONED AS KEY TO THE NEGOTIATIONS,” Sen. Brian Schatz, D-Hawaii, tweeted Friday. “They want to block the FED from helping the economy under Biden. It’s the reason we don’t have a deal.”

It wasn’t clear Friday morning whether the issue could still be resolved in short order or whether it threatened to derail the entire emerging agreement on a long-sought relief package for the COVID-19 pandemic.

[Stopgap funding up in the air as coronavirus relief talks drag on]

But Senate Majority Leader Mitch McConnell suggested Friday morning that a deal could still come together soon.

“The talks remain productive,” the Kentucky Republican said on the Senate floor. “In fact, I am even more optimistic now than I was last night that a bipartisan, bicameral framework for a major rescue package is close at hand.”

‘Most important thing’

In a call with reporters Thursday, Toomey 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. Congress gave Treasury $454 billion in a March relief package to backstop potential losses 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, saying that’s what the March law required.

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.

Toomey said the language he wants added to the COVID-19 relief package would ensure the law is followed when Biden takes office in January. But on Thursday, the Congressional Research Service released a report saying the law does not require ending the facilities or returning the funds.

Democratic aides circulated proposed language from Toomey, which the Pennsylvania Republican hasn’t confirmed, that would bar the Fed from making any new loans or buying bonds under the five lending facilities set up with money from the March law after Dec. 31. The one exception would be applications submitted to the Main Street program by Dec. 14, provided the deal closes by Jan. 8.

The provision also would bar the Fed from creating new facilities similar to those established with appropriations from the March aid package. That’s a change from July legislation Senate Republicans introduced and then re-upped in September, which wouldn’t have barred revival of the lending facilities, but would terminate their authority after Jan. 4 except in the case of restructuring existing loans.

In a statement Friday, Toomey said what he was advocating “largely mirrors” the earlier proposal and “affects a very narrow universe of lending facilities” which couldn’t be restarted without action by Congress.

Mnuchin’s decision last month took back the remaining $429 billion in appropriations to backstop the Fed facilities, plus another $26 billion left for direct Treasury loans. The emerging aid package seemed likely to repurpose all or most of those funds, though final details weren’t available.

The Treasury move didn’t affect some $20 billion previously committed to other pandemic-related Fed lending facilities before the March aid package was enacted. Toomey’s draft language would bar that money from being used next year for other purposes than those originally intended — so it couldn’t be used to backstop loans to mid-sized business loans or municipal bonds, for instance.

‘Backdoor’ state and local aid?

Sen. John Cornyn, R-Texas, defended Toomey’s stance in a Friday morning tweet, arguing that since much of the money went unspent, lawmakers shouldn’t “leave it lying around so it could be approved for unapproved purposes, like a backdoor to more state and local aid.”

The incoming Biden administration waded into the fray as well on Friday morning. Prospective National Economic Council Director Brian Deese said in a statement that the aid package “should not include unnecessary provisions that would hamper the Treasury Department and the Federal Reserve’s ability to fight economic crises.”

Republicans and the Treasury Department say the Fed funds aren’t needed because the market has been able to absorb substantial municipal bond issuance, while businesses have been able to secure credit from banks without federal intervention. Democrats argue the facilities have a low take-up rate because Treasury imposed such onerous terms to avoid taking taxpayer losses as to make the programs unattractive to borrowers and lenders.

Even if Toomey’s proposal is dropped, GOP fears of opening the floodgates to a state and local bailout would require several things to happen.

Treasury Secretary-designate Janet Yellen would need to convince five of the seven Fed board members to not just relaunch the Main Street and municipal lending facilities, but to also substantially improve the terms of the loans they offer.

Even if Yellen and the Fed agreed to do that, without additional funds from Congress, those programs would be limited in size. Five of the six Fed governors currently seated were appointed by Republicans; Biden would have the chance to nominate the seventh.

If the lending dispute can be resolved, lawmakers could unveil legislation as early as Friday to provide pandemic relief that has been delayed for months.

Hoyer and House Minority Leader Kevin McCarthy told reporters separately that Congress would avoid a government shutdown, but a stopgap bill still hadn’t been scheduled for a floor vote by early afternoon Friday.

“I am so frustrated by the inability of us to act like adults, with responsibility,” Hoyer said. “I think McConnell is the principal culprit. But I don’t think the rest of us are without blame.”

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Paul M. Krawzak, Niels Lesniewski , Lindsey McPherson and Jennifer Shutt contributed to this report.

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