The new data undercut a Republican argument that state and local governments have gotten enough help from Washington, with some citing an uptick in revenue for many states this summer that outpaced initial projections. But the job losses suggest that economic relief that Congress approved in the CARES Act in late March gave a temporary boost to local economies that’s now drying up.
Not all Republicans have rejected more state aid outright. In an interview, Sen. Bob Menendez (D-N.J.) cited three Republican cosponsors — Sen. Bill Cassidy of Louisiana, Cindy Hyde-Smith of Mississippi and Susan Collins of Maine — for his bill to provide $500 billion in flexible grants to help state and local governments.
“One of the lessons we should take from the Great Recession was that massive layoffs and tax increases at the state and local level acted as an anchor and weighed down our economic recovery for years to come,” Menendez said. “We shouldn’t repeat that.”
He pointed to a Moody’s Analytics report this month that predicted the fiscal shock for state and local governments could run as high as $450 billion, or 2.2 percent of the economy. However, that figure assumes an additional stimulus, projected at approximately $1.5 trillion, from the federal government arriving sometime in the fall.
Rep. Tom Cole (R-Okla.), a member of the House Republican leadership and a senior appropriator, told POLITICO that if lawmakers fail to reach agreement soon, the economy could “lose the momentum that we created over the summer.”
“There’s a lot of things that were actually generating revenue for states that are ending,” Cole said, referring to unemployment benefits, stimulus checks and coronavirus support funds.
Even though many of his fellow Republicans think no more aid is needed, the “political reality is if you want a package, there’s going to have to be state and local and tribal aid in it, period,” Cole said.
Meanwhile, local budget officials have kept up a steady call for more aid. They also warn that federal funds already provided can’t be used the same way by all states.
Colorado Treasurer Dave Young said that even though the state managed to fill shortfalls earlier this year using reserves, the drawdown led to automatic spending cuts because a certain level of reserve funds is required by statute.
Young said the state also has difficulty using the Municipal Liquidity Facility, which the Federal Reserve set up in April as a backstop emergency lending source for states in financial distress. With so few states using the facility, Sen. Pat Toomey (R-Pa.) has suggested that officials wind it down.
But Young said the facility, which lends short-term debt at above-market rates to be paid off over a maximum of three years, isn’t a viable option for Colorado, because state law requires that any borrowing must be paid off in the same fiscal year it is made.
“When they say, ‘Well, you’re not utilizing it!’ Well, there’s a number of reasons we’re not utilizing it. None of them have anything to do with the shape of our economy, which is desperate,” Young said.
State budget officials also want more time and flexibility to spend the $150 billion in state reimbursement for coronavirus-related expenses that Congress allocated because all the money has to be spent by the end of December. But with the coronavirus and flu season colliding in the winter, there’s a fear that spending everything now could backfire later.
“The biggest issue is that, in the short-term, those CARES funds that we received have to be spent down by December. But truly, we don’t know what’s going to happen,” said Colleen Davis, Delaware state treasurer. “We do know that we’re going to continue to see a decline.”
Cole said he’ll take whatever amount the House, Senate and White House can agree to.
“It’s better than zero,” he said. “No deal means zero.”