Why the Federal Reserve Should Grant Zero-Interest Loans to Local and State Governments

Our states and cities are facing devastating cuts due to the pandemic. To prevent that, let’s cancel Wall Street.

Saqib Bhatti


The harm that Covid-19 is wreak­ing on the econ­o­my has the poten­tial to cause sus­tained dam­age for years into the future. With ris­ing demand for pub­lic ser­vices in the face of wide­spread job loss­es and insuf­fi­cient help from the fed­er­al gov­ern­ment, the cat­a­stroph­ic domi­no effect of the pan­dem­ic on the econ­o­my is just begin­ning. And instead of beef­ing up sup­port to strug­gling res­i­dents, elect­ed offi­cials nation­wide — many begin­ning to pre­pare their bud­gets for the next fis­cal year — are threat­en­ing dev­as­tat­ing cuts to pub­lic ser­vices. We know from recent his­to­ry that these cuts will be tar­get­ed in the same com­mu­ni­ties of col­or that have already borne the brunt of the pandemic’s casualties.

It doesn’t have to be this way. Even as they pre­pare to slash ser­vices, states and cities will con­tin­ue to pay $160 bil­lion in annu­al inter­est straight into the pock­ets of Wall Street investors. But by replac­ing this debt with direct, zero-inter­est loans straight from the Fed­er­al Reserve to local and state gov­ern­ments, that $160 bil­lion now spent on inter­est pay­ments could instead be direct­ed towards des­per­ate­ly need­ed essen­tial ser­vices such as edu­ca­tion, hous­ing, health­care and transportation.

It’s time to, as we put it, #Can­cel­Wall­Street, and instead focus on bol­ster­ing the ser­vices that can help pro­tect our com­mu­ni­ties going forward.

Remov­ing the inter­est bur­den from state and local gov­ern­ments would more than pay to keep ser­vices ful­ly fund­ed, plug­ging bud­get holes for every town in the coun­try. Addi­tion­al­ly, accord­ing to a new report from Action Cen­ter on Race and the Econ­o­my, that mon­ey could help 13 mil­lion fam­i­lies avoid evic­tion, or pay for free child­care for every work­ing fam­i­ly in the country. 

Now more than ever, elect­ed lead­ers are respon­si­ble for pol­i­cy and bud­get solu­tions that will pro­vide imme­di­ate, effec­tive help for the peo­ple they serve. With con­tin­ued unem­ploy­ment or under­em­ploy­ment, the sus­tained need for Covid-19 test­ing and treat­ment, the costs asso­ci­at­ed with dis­tance learn­ing for stu­dents and teach­ers, and much more, it’s crit­i­cal that we iden­ti­fy where pub­lic mon­ey is being wast­ed and where it could instead be used to address the mul­ti­ple crises work­ing peo­ple face. The last place our tax­pay­er dol­lars should be going is to Wall Street investors. That’s why we need the Fed­er­al Reserve to step in. 

Two of the nation’s biggest cities are already work­ing on this idea. One res­o­lu­tion was recent­ly intro­duced in Los Ange­les by Coun­cilmem­bers Bob Blu­men­field and Mike Bonin, and a sim­i­lar res­o­lu­tion will be intro­duced at the Chica­go City Council’s next meet­ing on Octo­ber 7. The two cities would each save over $1 bil­lion per year, respec­tive­ly, if relieved of these harm­ful and unnec­es­sary inter­est pay­ments to Wall Street. 

As I’ve writ­ten in these pages before, the entire munic­i­pal lend­ing sys­tem is a scam per­pe­trat­ed by wealthy banks on the backs of tax­pay­ers. Rather than pay their fair share in tax­es, the wealthy lend that mon­ey to states and cities and charge inter­est for it, dou­bly hurt­ing tax­pay­ers by less­en­ing the tax base and siphon­ing repay­ment mon­ey away from the bud­gets of essen­tial services.

It’s time for the Fed­er­al Reserve to pro­vide state and local gov­ern­ments with the financ­ing they need to avoid harm­ful bud­get cuts that will make eco­nom­ic recov­ery even more dif­fi­cult — and harm Black, Lat­inx and Indige­nous com­mu­ni­ties in par­tic­u­lar. Elect­ed offi­cials across the coun­try should join the effort to #Can­cel­Wall­Street, treat bud­gets like the moral doc­u­ments they are, and pri­or­i­tize ser­vices that will save lives. 

Saqib Bhat­ti is the Co-Exec­u­tive Direc­tor of the Action Cen­ter on Race & The Econ­o­my and the Direc­tor of the ReFund Amer­i­ca Project.
Limited Time: