It’s Time to Fight for State and Local Governments Fighting for Us

It’s Time to Fight for State and Local Governments Fighting for Us

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Senate Majority Leader Mitch McConnell didn’t mince words: state governments, currently facing a fiscal death grip due to the coronavirus, won’t be supported and should consider filing for bankruptcy.1 What McConnell failed to mention was that state and local governments employ more than 1 in 10 workers, are responsible for administering unemployment insurance (UI) to more than 30 million newly unemployed Americans, and sit on the front lines of public health crisis response—including setting up makeshift hospital facilities and managing shelter in placer orders.2

This is not the time to turn a blind eye to our state and local governments. The Center on Budget and Policy Priorities estimates the impending state budget shortfall could be the largest on record, and most states’ new fiscal years begin on July 1.3 Bankruptcy for states would not solve these drastic shortfalls in revenue, because it would discharge only a small amount of state spending at best.4

To confront this crisis, we’ve called for a Save Our States Rescue Plan that would stabilize all communities who are on the frontlines helping Americans through this crisis. Among the seven policy options to accomplish that is the creation of a State Fiscal Stability Fund, a federal funding pool to keep states and cities whole while they continue combatting the coronavirus pandemic.

We aren’t alone in calling for massive support. The U.S. Conference of Mayors recently asked for an additional $250 billion in fiscal relief.5 The National Association of Counties noted counties could face a budget impact of $144 billion. The National Governors Association, in conjunction with New York Governor Andrew Cuomo, is calling for $500 billion in state fiscal support alone.6 The National League of Cities found 100% of municipalities expect a budget shortfall this year.7 Cincinnati, Ohio put a quarter of the city’s workforce on emergency furlough last week.8 It’s not just small cities, either, New York City Mayor Bill de Blasio proposed a $827 million cut in education spending.9 Much like the coronavirus itself, the resulting recession and economic crunch will leave no corner of the country unscathed.  

Luckily, there are several congressional options on the table addressing different aspects of this crisis. They also attempt to plug two major holes left open by the third coronavirus relief package passed by Congress, the CARES Act. The bill allocated $150 billion for state and localities with a population of at least 500,000 to recoup costs associated with responding to the public health crisis. But that size requirement leaves too many municipalities out. Atlanta, Miami, Minneapolis, and New Orleans all clock in below 500,000 residents according to 2018 Census estimates.10 Another major flaw in the law is the restrictions on the use of federal dollars. States and localities can only use funds to cover the cost of crisis response, not to compensate for forgone revenues and plug inevitable budget holes.

In light of these shortfalls, two major proposals are up for debate in Congress in anticipation of the next major response bill. Senators Bill Cassidy (R-LA) and Bob Menendez (D-NJ) introduced a bipartisan measure to increase available funds and expand eligibility for state and local governments to shore up their budgets. The State and Municipal Aid for Recovery and Transition (SMART) Fund builds on the existing state and local aid within the CARES Act by including municipalities of at least 50,000 in size and freeing funds for broader use. Allocation will be based on three metrics below, each accounting for 1/3 of the pot:

  • Population size (same formula used in the CARES Act)
  • Number of coronavirus cases relative to the U.S. population
  • State revenue losses to pre-coronavirus projections

In the House, a bipartisan coterie of representatives introduced a measure to expand emergency support to cover smaller local governments. The Coronavirus Community Relief Act allocates funding to municipalities with a population of under 500,000. Allocation of the funds will be based on the population proportion of each state and locality applying.

Here’s how the new proposals stack up against the CARES Act:

Bill

Funding

Size Requirement

Use Restrictions

CARES Act (passed 3/21)

$150 billion

At least 500,000

Necessary expenditures due to public health emergency11

SMART Fund

$500 billion

At least 50,000

None

Coronavirus Community Relief Act

$250 billion

Population under 500,000

None

Both sides of the Capitol are in the midst of discussing next steps in the federal response to the coronavirus crisis. A state and local stabilization fund is an essential element to the next aid bill, and the two options noted above are a natural starting point for discussion. The Coronavirus Community Relief Act offers the ability to round out existing funding structures created by the CARES Act. The SMART Fund does the most to aid states and localities more broadly. Both need to be considered.

Few things about the current public health and economic crisis are encouraging, but policymakers and concerned citizens can take comfort in the apparent bipartisan effort to prioritize the health of state and local governments. Senator Menendez, a former mayor himself, put it best: “The proverbial house is on fire and we need to focus the water on the hotspots, because if we don’t put the flames out, they will only jump until the entire block is up in smoke.”12

Endnotes

  1. Hulse, Carl. “Financial Aid to Struggling States is Next Big Congressional Battle.” The New York Times, 23 Apr. 2020. https://www.nytimes.com/2020/04/23/us/politics/congress-state-aid-coronavirus.html?campaign_id=9&emc=edit_NN_p_20200424&instance_id=17910&nl=morning-briefing&regi_id=81587740&section=topNews&segment_id=25875&te=1&user_id=edd3a73bc96ac746f45182d5a17d5c10. Accessed Apr. 29, 2020. 

  2. “Employment by major industry sector.” U.S. Bureau of Labor Statistics, U.S. Department of Labor. https://www.bls.gov/emp/tables/employment-by-major-industry-sector.htm. Accessed Apr. 29, 2020.

  3. McNichol, Elizabeth. “States Need Significantly More Fiscal Relief to Slow the Emerging Deep Recession.” The Center on Budget and Policy Priorities, 14 Apr. 2020. https://www.cbpp.org/research/state-budget-and-tax/states-need-significantly-more-fiscal-relief-to-slow-the-emerging-deep. Accessed Apr. 29, 2020.

  4. Leachman, Michael. “McConnell Argument Against State Fiscal Relief Doesn’t Stand Up.” The Center on Budget and Policy Priorities, 23 Apr. 2020. https://www.cbpp.org/blog/mcconnell-argument-against-state-fiscal-relief-doesnt-stand-up. Accessed Apr. 29, 2020.

  5. Hart, Kim. “Mayors ask Congress for $250 billion in local Coronavirus relief.” Axios, 14 Apr. 2020. https://www.axios.com/mayors-250-billion-coronavirus-funds-congress-5b81d812-9dc2-4ad3-a7ed-9262ddd6a7e1.html?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axioscities&stream=cities. Accessed Apr. 29, 2020.

  6. Snell, Kelsey. “Governors Call for $500 Billion Bailout Amid Standoff Over Coronavirus Relief Funds.” NPR, 11 Apr. 2020. https://www.npr.org/sections/coronavirus-live-updates/2020/04/11/832443932/governors-call-for-500-billion-bailout-amid-standoff-over-coronavirus-relief-fun. Accessed Apr. 29, 2020.

  7. “The Economy and Cities: What America’s Local Leaders are Seeing.” National League of Cities, the United States Conference of Mayors. https://www.usmayors.org/wp-content/uploads/2020/04/nlc-USCM_citybudget_survey_infograph.pdf?utm_source=Press&utm_campaign=c17ea63bd9-EMAIL_CAMPAIGN_2019_08_14_03_55_COPY_01&utm_medium=email&utm_term=0_86729c203c-c17ea63bd9-109361381&stream=cities. Accessed Apr. 29, 2020.

  8. Juech, John. “For Cities, This is a Fiscal Disaster.” CityLab, 21 Apr. 2020. https://www.citylab.com/perspective/2020/04/cities-jobs-layoffs-furloughs-financial-crisis-coronavirus/610294/?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axioscities&stream=cities. Accessed Apr. 29, 2020.

  9. Amin, Reema. “NYC school budgets take a hit as de Blasio proposes $827 million in education cuts.” Chalkbeat, 16 Apr. 2020. https://ny.chalkbeat.org/2020/4/16/21225539/nyc-school-budgets-take-a-hit-as-de-blasio-proposes-827-million-in-education-cuts?stream=cities. Accessed Apr. 29, 2020.

  10. “List of United States Cities by population.” Wikipedia, Wikimedia Foundation. https://en.wikipedia.org/wiki/List_of_United_States_cities_by_population. Accessed Apr. 29, 2020.

  11. [11] “The CARES Act Provides Assistance for State and Local Governments.” U.S. Department of the Treasury. https://home.treasury.gov/policy-issues/cares/state-and-local-governments. Accessed Apr. 29, 2020.

  12. “Cassidy, Menendez Announce Bipartisan Breakthrough to Deliver Federal Resources to States, Communities on the Frontline of COVID-19 Fight.” The Office of Bill Cassidy, M.D., 19 Apr. 2020. https://www.cassidy.senate.gov/newsroom/press-releases/cassidy-menendez-announce-bipartisan-breakthrough-to-deliver-federal-resources-to-states-communities-on-frontline-of-covid-19-fight. Accessed Apr. 29, 2020.