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© BloombergSteven Mnuchin, Secretary of the United States Treasury, listens during a press conference in Washington, DC, United States, Monday, March 9, 2020. President Donald Trump said on Monday that he would call for a reduction in payroll taxes and “very substantial relief” for industries that have been hit by the virus, reversing the need for economic stimulus hours after markets posted their worst losses in more than a decade.
(Bloomberg) – Treasury Secretary Steven Mnuchin to put $ 455 billion in unspent Cares Act funds into an account his alleged successor, former Federal Reserve Chairman Janet Yellen, will soon need of congressional authorization to use.
The money will be placed in the agency’s general fund, a Treasury Department spokesperson said on Tuesday. Most of that money had gone to support the Federal Reserve’s emergency lending facilities, and Mnuchin’s recovery would make it impossible for Yellen as Treasury Secretary to restore to that end without the blessing of lawmakers.
Democrats were quick to slam the move, with Bharat Ramamurti, a member of the congressional-appointed watchdog overseeing the Fed and Treasury Covid-19 relief funds, saying “the good news is that it is illegal and may be canceled next year ”.
A Treasury spokesperson rejected this analysis, saying Mnuchin’s decision was legal under the Cares Act stimulus bill that originally provided the funding. Republicans and Democrats also clashed Friday over whether the outgoing Treasury chief’s reading of the law required the phasing out of a slew of Fed facilities by the end of the year.
President-elect Joe Biden chose Yellen as his candidate for Treasury secretary. His transition team last week called Mnuchin’s demand for the return of Fed funds “deeply irresponsible,” but Mnuchin has denied trying to limit Biden’s options to revive the economy.
Read more: Congress splits along party lines following move of Fed facility
The general treasury fund can only be operated with “authority based on legislation issued by Congress,” according to the department’s website.
The move leaves just under $ 80 billion available in the Treasury’s Exchange Stabilization Fund, a pot of money that can be used with some discretion by the Treasury chief. In contrast, the Cares Act funds had specific uses and were not available for general public spending.
Any decision by Yellen to take the money out of the general account and put it into the stabilization fund would likely spark a wave of Republican protests – a battle she may prefer to avoid early in her term.
The money in question includes $ 429 billion that Mnuchin recovers from the Fed – which has backed some of the central bank’s emergency lending facilities – and $ 26 billion the Treasury received for direct business loans. . Both initiatives were created under the Cares Act which was passed in March as the coronavirus pandemic inflicted economic hardship on the United States.
The Cares Act set certain limits for the deployment of unused funds beyond January 1, 2021, without specifically mentioning whether this money could be parked in the general treasury account. The law specifies that the money not used on January 1, 2026 was to be placed in the general account and used to “reduce the deficit”.
Mnuchin sent a letter to Powell last week demanding repayment of the money provided to the Fed as a safety net for the central bank to lend to certain markets during times of stress. The Fed publicly opposed the move, but agreed to return the funds to the Treasury.
Mnuchin insists he is following the letter of the law in canceling the Fed’s Cares-linked lending programs, saying many markets are no longer at risk of seizing up and need no help beyond of next month, when to expire.
The Treasury chief said the funds can be better applied to specific areas of the economy that need them the most, thanks to grants approved by Congress.
“For businesses affected by Covid – like travel, entertainment and restaurants – they don’t need more debt, they need more PPP money, they need more grants,” said Mnuchin in an interview last week.
Mnuchin is not required to transfer the money to the general fund – the Cares Act states that the Treasury Department can maintain access to the money by keeping it in its exchange stabilization fund until 2026.
“Secretary Mnuchin is engaged in economic sabotage and is trying to tie the hands of the Biden administration,” Democratic Senator Ron Wyden said in a statement after Bloomberg reported the plans to the Treasury.
Earlier on Tuesday, Republican Senator Pat Toomey – a member of the GOP watchdog group appointed by Congress – in contrast signaled a warning against any decision by Yellen to restart funding for the Fed’s facilities.
“I look forward to discussing with her a variety of issues, in particular the legal requirement for the Cares Act Temporary Emergency Lending Facilities to close by the end of the year and remain closed, in the ‘absence of further congressional action,’ Toomey said.
(Updates with the legality issue starting in the third paragraph.)
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