Chances Dim For State and Local Aid in Pending Virus Relief Deal

The odds appeared long on Monday evening that the latest coronavirus relief package taking shape in Congress would include more federal funding to help state or local governments as they grapple with the budget fallout that the pandemic has caused.

Democrats called for $150 billion of state and local aid to be included in the “interim” coronavirus bill. But Republicans have pressed for a narrower measure, with an emphasis on replenishing the cash needed for a program meant to help small businesses cover payroll. 

Lawmakers on the two sides have indicated that they’re close to reaching a deal, and hope to hold votes on it in both chambers this week. The bill is expected to include additional funds for the small business initiative, known as the Paycheck Protection Program, as well as money for hospitals and coronavirus testing. 

But there were few signs that new state and local aid was close to being added—even though Democrats were continuing to push for it, according to multiple news reports.

When asked over the weekend about the prospect for including state and local funding, President Trump responded by saying, “we will be saving that for another time” and that it would “be a very big topic over the next couple of weeks.”

“It will probably be our next negotiation,” Trump said. Referring to the state and local relief funding, he added: “By the way, some states and local governments need it. I’m the first one to admit that.”

Trump reiterated on Monday that discussions about additional state and local assistance would likely take place as his administration and lawmakers work on an upcoming federal relief bill that would follow the interim legislation currently under negotiation.

He suggested that plans for additional spending on the nation’s infrastructure could be part of those talks as well.

But coming up with a plan to deliver hundreds of billions of dollars in flexible funding to states and localities—in a way that satisfies both state and local elected leaders, and is acceptable to both Republicans and Democrats in Congress—promises to be a political balancing act.

A bipartisan pair of lawmakers in the U.S. Senate—Sens. Bob Menendez, a New Jersey Democrat, and Bill Cassidy, a Louisiana Republican—announced on Sunday that they had agreed on legislation to provide $500 billion of assistance to states and localities.

This amount is in line with a request by the National Governors Association, which is urging Congress to appropriate $500 billion in federal funding that states and territories would be able to use for filling budget shortfalls brought on by the public health crisis. 

The U.S. Conference of Mayors, the National League of Cities and the National Association of Counties have advocated for at least $250 billion in dedicated aid for local governments in the interim bill.

Cassidy emphasized during a call with reporters on Monday that ensuring states and localities have the financial capacity to continue providing core services, like trash collection and fire protection, will be vital for the nation’s economic recovery from the pandemic.

“We need to prime the pump so that basic municipal services can be in place,” Cassidy said.

Menendez said he and Cassidy only reached agreement on their proposal late in the weekend and that it had not been on the table as part of the negotiations over the interim bill. 

Cassidy said that the interim measure now being finalized “will not have this aid or any aid for states and municipalities.” 

“It kind of makes sense though, because we don't yet know what the toll is,” he added.

But he and Menendez were both optimistic that their bill could get folded into the next package. 

“We’ll advocate for it,” Cassidy said. 

In addition to asking for more money, many state and local leaders want to be able to tap the next round of federal aid to help offset anticipated losses in tax revenues that they are now facing due to the sharp economic downturn the virus has caused.

Smaller-sized local governments are also pressing for a program that enables them to access direct relief, rather than relying on states to pass federal dollars on to them.

Legislation Trump signed last month—the CARES Act—included $139 billion in a Coronavirus Relief Fund to help local governments with populations over 500,000 and states with covering costs tied to the pandemic. But restrictions written into the law prevent states and localities from using that money to backfill lost tax revenues.

All together, the CARES Act contained upwards of $200 billion of federal aid to states and local governments, including money for education, transit and other expenses.

The bill Menendez and Cassidy are backing is geared towards addressing some of the concerns state and local officials have raised about how aid for their jurisdictions has been structured so far.

The senators say their legislation would build on the CARES Act relief fund. But the bill would expand eligibility to include smaller localities, with populations of 50,000 or more, and would allow for the money to be used to plug revenue holes the outbreak has caused.

It is also designed to channel money towards places with the worst revenue losses, and highest virus infection rates.

State and local governments continue to sound alarms about the financial problems their jurisdictions are running into due to the virus and the economic damage it has caused.

Gov. Andrew Cuomo, of New York, on Monday raised the prospect of 20% budget cuts for schools, local governments and hospitals if the federal government doesn’t fork over more money. “The state budget is going to be a function of whatever the federal government gives us,” he said. Cuomo later added: “You can’t spend what you don’t have.”

In Illinois—a state known for financial troubles before the virus struck—state Senate President Don Harmon sent a letter last week to Sen. Dick Durbin, who represents Illinois in the U.S. Senate, asking him to consider roughly $41 billion in federal funding for the state.

Writing on behalf of his chamber’s Democratic caucus, one of the things Harmon asked for was $10 billion either in direct cash assistance, or as a low-interest loan, to help bolster the state’s chronically troubled pension system for public workers.

Republicans lashed out in response, underscoring the political tensions that could rise up as the debate over state and local aid continues.

The Illinois Republican party in a tweet over the weekend accused state Democrats of “brazenly using a global pandemic as an excuse” to ask the federal government “to bail them out of the fiscal disaster they manufactured over the last two decades.”

Nikki Haley, who served as ambassador to the United Nations under Trump and is a former South Carolina governor also criticized Harmon’s request. “This is infuriating,” she said on Twitter. “States should not get windfalls. It All has to be paid back,” she added.

Compared to the federal budget in normal times, the sums of state and local aid now under consideration are remarkable.

For example, in fiscal 2019, the federal government, in total, spent $661 billion on “non-defense discretionary” programs, according to the Congressional Budget Office.

The category does not include Medicare, Medicaid, Social Security, or the military. But it does cover a wide swath of domestic spending in other areas, like transportation, education, health and housing.

Another $500 billion in state and local aid, combined with the CARES Act funding, would push emergency spending to help state and local governments deal with the pandemic to a level on par with the fiscal 2019 funding for that entire basket of discretionary programs.

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