By Jon Hill

Law360 (December 1, 2020, 5:55 PM EST) -- Democratic senators at a Tuesday hearing took U.S. Treasury Secretary Steven Mnuchin to task for pulling the plug on a number of the Federal Reserve's coronavirus emergency lending facilities, a move that he countered was legally required and will free up money for use on additional pandemic relief.

Appearing at a Senate Banking Committee hearing, Mnuchin defended his controversial decision last month to allow the Main Street Lending Program and several other of the Fed's pandemic-related loan facilities to expire at the end of the year.

Those facilities, which were intended to support the flow of credit to households, businesses and state and local governments, have been backstopped by hundreds of billions in funds provided to the Treasury by the Coronavirus Aid, Relief and Economic Security Act, which Mnuchin told the senators had set a "very clear" Dec. 31 expiration date for that authority.

"My decision not to extend these facilities was not an economic decision," Mnuchin said. "I find it implausible that any member of this committee believed that in voting for the CARES Act, you were authorizing me to invest $500 billion to make loans in perpetuity."

But Democrats on the committee disputed Mnuchin's interpretation of the law and slammed the move as ill-timed at best, pointing to continued economic hardship from the pandemic and rising uncertainty amid the nationwide surge in COVID-19 infections and deaths.

"We need to use every tool we have," Sen. Robert Menendez, D-N.J., said. "No one will be better off after you end the CARES Act facilities as we enter a third wave of COVID. … Ending these facilities is not mandated by law."

Ranking member Sen. Sherrod Brown, D-Ohio, went further, accusing the outgoing Treasury secretary of attempting "to sabotage our economy on the way out the door" after President Donald Trump lost his bid for re-election.

"You're purposely trying to stop President-elect [Joe] Biden and Treasury Secretary-designee [Janet] Yellen from getting to work for the people we all serve. Or you're delusional and you think … when the stock market's up everywhere, everything is fine," Brown told Mnuchin. "Either way, it's malpractice."

Mnuchin indicated in a Nov. 19 letter to the Fed that he would let the facilities expire as scheduled at the end of the year and asked for the return of the unused CARES Act money supporting them. Although the Fed has publicly chafed at the decision, citing the "still-strained and vulnerable economy," its chairman, Jerome Powell, has said the funds will be sent back to the Treasury as requested.

Tuesday's hearing also featured testimony from Powell, who told senators that the Fed would have preferred keeping the facilities open for longer but understood Mnuchin's decision was his to make. Powell additionally suggested that the Fed could use other Treasury funding to backstop its emergency lending if necessary, but he emphasized that more aid from Congress could play an important role in getting consumers and businesses "across the chasm created by the pandemic."

"We can see what may be the light at the end of the tunnel with the vaccines," Powell said. "We at the Fed will keep at it until we're really done, and I think that some fiscal support now would really help move the economy along as well."

Powell and Mnuchin's joint appearance before the committee came the day after the Fed and Treasury announced 90-day extensions to four other soon-to-expire lending facilities set up by the central bank in response to the pandemic. Those facilities, which did not use CARES Act funding, were created in March and April to relieve strains in short-term funding markets and provide liquidity for the Paycheck Protection Program.

Mnuchin has said he supports keeping those facilities open into early 2021 out of "an abundance of caution," but he insisted to senators on Tuesday that his hands were tied when it came to the CARES Act facilities at the Fed. 

"We will completely follow the law," Mnuchin said. "This is not discretionary. Again, I urge Congress, if you want to extend this, bring back legislation which would authorize me to do it."

Mnuchin also stressed that he doesn't see the economy as out of the woods yet, saying he'd encourage lawmakers to repurpose the unspent money from the CARES Act for an additional pandemic relief package targeted to particularly hard-hit areas of the economy, including airlines, hotels, restaurants and entertainment.

Republicans, meanwhile, rode to the Treasury secretary's defense, with the committee's outgoing Chairman Mike Crapo, R-Idaho, professing to be "quite surprised" that Democrats are sticking up so strongly for the expiring Fed facilities when they had initially objected to their CARES Act funding.

"We were accused of creating a big slush fund," Crapo said. "And now when we have terminated these funds, as required by the law so that we can utilize them more effectively in the next act, the criticism is that this fund should not have been terminated. I just find that kind of confusing."

Other Republicans pushed back on the idea that it was premature to wind down the CARES Act facilities. Sen. Patrick Toomey, R-Penn., who is line to chair the Senate panel next year if Republicans maintain control of the chamber, argued that the facilities were never meant to be more than temporary measures to stave off another 2008-style financial crisis and had accomplished their "intended purpose of stabilizing credit markets and restoring the flow of private credit."

Sen. Tom Cotton, R-Ark., agreed that the facilities have run their course and suggested that the economy could be put on an even stronger footing for recovery if Congress would "tell these Democratic governors and mayors to stop with their irrational lockdowns."  

Cotton added that Democratic lawmakers should also compromise on a smaller relief bill instead of holding out for items like "welfare checks for illegal immigrants" as part of a larger package, and he argued that it's actually those on the left who are playing politics when it comes to criticizing Mnuchin's decision on the Fed's CARES Act facilities.

"It seems like the Democrats, with the hope of having a new secretary of the treasury and a new administration, would like a $450 billion slush fund to reward politically favored organizations like, I don't know, abortion providers or marijuana dispensaries, or maybe to bail out their partisan allies in states and cities that have mismanaged their finances for years," Cotton said.

"But that's not what the law says, and that's the point that Secretary Mnuchin has been making all along," Cotton continued. "This is not an economic decision. This is a legal decision."

--Editing by Michael Watanabe.

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