Democrats Want Extension of Fed Muni Facility; Republicans Balk

Members of a congressional watchdog divided along partisan lines over the extension of a U.S. Federal Reserve program offering loans to state and local governments, as municipalities warn they need more cash.

The two Democratic appointees on the Congressional Oversight Commission, Representative Donna Shalala and Bharat Ramamurti, a former aide to Senator Elizabeth Warren, said in a report issued Friday that shuttering the central bank’s Municipal Liquidity Facility as scheduled at year-end would pose risks to economic recovery.

The Republican members, Senator Pat Toomey and Representative French Hill, said the program, which has made only two loans, ...