An emerging bipartisan compromise on a new coronavirus stimulus package appears likely to leave out assistance for state and local governments, a top Democratic priority that continues to garner stiff Republican resistance despite bipartisan calls for further aid.
Congressional leaders said Wednesday they were near agreement on a $900 billion relief package that would include direct stimulus checks and enhanced unemployment benefits, as well as funds for education, transportation, vaccine distribution, and small businesses. State assistance and liability protections for businesses, the two most contentious issues, have been set aside as lawmakers scramble to make a deal by the end of the week.
“We Democrats would have liked to go considerably further, but this won’t be the last time Congress speaks on COVID relief," Senate Minority Leader Chuck Schumer, D-N.Y., said on the Senate floor. "We need to address this emergency right now.”
Democrats maintained some form of aid for state, local, and tribal governments would be included, but a $160 billion infusion of funds that had been part of a previous bipartisan proposal was scrapped. That is certain to disappoint governors and mayors who have been increasingly vocal about their need for assistance.
While the $160 billion proposal was far short of what Democrats originally sought, it was still too much for many Republicans, who blame state budget deficits on poor fiscal management. On a press call Tuesday, Democratic New Jersey Gov. Phil Murphy and Pennsylvania Gov. Tom Wolf slammed congressional Republicans for withholding the funds.
“The longer this goes on, the more costly it will be,” Murphy said. “There's a need for a bridge to get us to that better day, which is months away, not years away.”
GOP leaders have dismissed requests for hundreds of billions in aid as a “blue state bailout,” but the reality is more complicated. The Republican governors of Arkansas, Maryland, Massachusetts, New Hampshire, and Vermont recently issued a joint statement pleading for relief.
“The people in our states continue to pay a high price for Congress’ inaction. There is no more room for partisan positioning and political gamesmanship,” they said.
Beyond deep-blue New York and California, several states that rely on tourism or energy have taken a severe fiscal hit due to the pandemic, including Republican-run Florida, Texas, Alaska, and Wyoming. The bipartisan National Governors Association has been pushing for $500 billion in assistance over three years.
“Governors have been on the front lines since the beginning of the pandemic, procuring lifesaving medical and personal protective equipment, establishing field hospitals, and providing economic relief to small businesses and workers. But this is a national crisis, cutting across geographic, economic and demographic lines, and it demands a national, bipartisan solution,” NGA Chairman Gov. Andrew Cuomo and Vice Chairman Gov. Asa Hutchinson said in a statement last week.
Despite the urgency from state officials, Jared Walczak, vice president of state projects at the Tax Foundation, said delaying a debate over federal relief into the new year is unlikely to be catastrophic. Most states will not need to finalize their budgets for the next fiscal year until the summer.
“The timing on state and local aid is not as urgent as the timing on some of the other provisions that are included in the bipartisan proposal, in part because states operate on a fiscal year schedule,” Walczak said.
Budget shortfalls have already spurred some significant cuts to jobs and services. Education systems, public safety departments, health programs, and transit agencies in many states are either grappling with tighter budgets now or facing projected cuts in the near future.
As congressional leaders haggle over details of a stimulus package, state officials fear circumstances could grow even more dire if no bill is passed by the end of the year. Federal programs providing additional food assistance, unemployment benefits, and protections for renters will expire at the end of the month without congressional action, placing new burdens on state welfare programs to pick up the slack.
In a recent New York Times op-ed, former Metropolitan Transportation Authority Chairman Richard Ravitch estimated cities and states employ more than 23 million workers and contribute over $3 trillion to the nation’s gross domestic product. He recommended the President-elect Joe Biden’s administration create a task force to study the long-term fiscal impact of the pandemic on state and local governments.
Walczak acknowledged challenges lie ahead for many states, but he stressed state revenues this fiscal year have been higher than expected so far. He attributed that partly to federal stimulus programs and to an economic recovery that has been stronger than anticipated.
“State revenue losses for fiscal years 2020 and 2021 look to be less than $200 billion in aggregate,” he said. “That is a meaningful figure, it would represent a revenue loss of nearly 10%, but it is significantly less than states experienced during the Great Recession and the recovery is coming faster.”
The CARES Act passed in March designated $150 billion for state, local, and tribal governments, but it included substantial restrictions on how the money could be spent. According to the National Governors Association, 89% of those funds have been allocated, but any unused money will need to be returned to the Treasury Department at the end of the year.
Attorneys general from 43 states and Washington, D.C. sent a letter to congressional leaders recently asking them to extend that deadline through 2021. States have also sought further flexibility in the expenses the funds can be used to cover.
Accounting for the assistance states have already received, the Center on Budget and Policy Priorities estimates state and local governments are still facing shortfalls of at least $350 billion through 2022, and fiscal struggles will likely continue for years beyond that. A surge in coronavirus cases this winter could force them to spend even more than projected and impose new restrictions on economic activity before vaccines are distributed.
The National Conference of State Legislatures expects most states will slash budgets by 5% to 20% as a result of the pandemic. If congressional gridlock prevents additional federal aid from flowing to fill those gaps, Walczak said the impact would vary widely by state, but some would inevitably need to either raise taxes or drastically curtail services.
“In the absence of additional aid, the median state would be looking at fairly small budget reductions or basically a no-growth scenario for the next year or so,” Walczak said. “Some states would take a very big hit and would have to take a look at substantial changes to the budget or taxes.”