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- Getting money to state and local governments facing significant budget shortfalls remains on the back burner in Congress as stimulus negotiations drag on, with reported $600 stimulus checks bumping budget relief from the latest $900 billion compromise deal.
- Right from the start, the COVID-19 pandemic “triggered a severe state budget crisis,” according to the nonpartisan Center on Budget and Policy Priorities.
- Almost nine months since the $2.2 trillion CARES Act was passed by Congress and signed by President Donald Trump, state and local governments have already been cutting jobs and services.
- Reduced consumer activity has left most municipal, county, and state governments with substantial revenue shortfalls, whether from sales taxes, highway tolls, parking fees, or public transportation fares.
- Any remaining hope rests on the incoming Biden administration, with state and local governments approaching a fiscal cliff.
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The coronavirus pandemic proved to be a nightmare scenario for state and local governments by late April.
Fewer people out and about meant sales tax revenue took a nose dive. More than 23 million Americans were unemployed at that point, a record since the Great Depression. And if the unemployment insurance payouts coupled with tax revenue drying up weren’t suffocating enough, debt payments and essential services still need to be covered.
Other revenue sources have also fizzled out, such as highway tolls, parking fees, or, in the case of New York City and others with substantial public transportation infrastructure, subway and bus fares. Ridership in the Big Apple, for instance, is still down 70% from pre-pandemic levels.
Now, almost nine months since the $2.2 trillion CARES Act was signed by President Donald Trump, officials at the county and state level are looking over the edge of a fiscal cliff.
The pandemic “triggered a severe state budget crisis,” according to the nonpartisan Center on Budget and Policy Priorities (CBPP). An overall estimate for the amount of lost revenue is difficult to pin down across cities, counties, and states, but officials in red and blue states alike have warned that essential services, including garbage pickup and policing, will face cuts if nothing is done by Congress.
Already in New York, tight local budgets resulted in shoddy snow removal in the aftermath of Thursday's nor'easter.
But despite these dire warnings, state and local budget relief has been relegated from negotiations around the $900 billion compromise stimulus package, essentially cast away for the rest of the lame-duck session so that $600 stimulus checks could have a chance at staying in the bill, according to The Washington Post.
Whether the direct payment checks make it into the final text remains to be seen, but early signs from party leadership indicate that the $600 checks came at the expense of state and local government aid as well as liability insurance for businesses, which had been a longstanding priority for Senate Majority Leader Mitch McConnell.
The myth of the so-called Blue State Bailout
As is the case with many policy debates in American politics, Republicans got out front on the messaging side, with lawmakers calling state and local aid a "blue state bailout."
McConnell began hammering home the term going back to late April, and New York Gov. Andrew Cuomo responded with a notorious rant on how much more the majority leader's home state of Kentucky gets in federal funds compared to what it contributes in revenue.
—NowThis (@nowthisnews) April 24, 2020
Democrats have not countered the "blue state bailout" moniker with their own, at least not one with any widespread use.
However, the partisan framing of the state and local budget crisis misses the mark.
It is not actually the case that only Democratic-majority states have issues with outstanding debts and less revenue trickling in during the pandemic. Since 2018, the top five states by outstanding debt have been California, New York, Texas, Illinois, and Florida, according to an October 2020 dataset by Statista.
In sixth place is Pennsylvania, a perennial swing state in presidential elections that had a Republican supermajority in its legislature two years ago.
If you want to see your state's overall debt situation, you can check the World Population Review's interactive page.
Another nonpartisan issue with the state and local budget crisis is employment. State and local governments employ the highest share of essential workers nationwide, but the pandemic triggered widespread layoffs and furloughs.
—Richard C. Auxier (@richardcauxier) July 2, 2020
State and local governments employ around 16 million people, or roughly 10% of the total US workforce, according to a Brookings Institution study.
With unemployment still well above pre-pandemic levels at 6.7%, adding a significant portion of those 16 million government workers to the 10.7 million people already without work could prove catastrophic.
Hopes riding on Biden
Getting money to states for revenue shortfalls does not have the same urgency behind it as direct payments, extending unemployment insurance, or a second round of the Paycheck Protection Program (PPP) loans for small businesses. Unemployment insurance and PPP loans have remained fixtures through months of talks, and direct payments have quickly risen as a priority among Republican leadership, reportedly because of its implications for the Senate runoffs in Georgia.
The biggest thing keeping state and local budget aid on the back burner is the incoming administration, with President-elect Joe Biden repeatedly promising to press Congress for it once he takes office on January 20.
Legislatively, the Senate majority could change by that point if both John Ossoff and Raphael Warnock oust Sens. David Perdue and Kelly Loeffler in the pair of elections in the Peach State on January 5.
However, even if Democrats are able to sweep the runoffs and rely on Vice President-elect Kamala Harris as the 51st vote, more conservative members in the caucus like Sens. Joe Manchin of West Virginia and Kyrsten Sinema of Arizona will be closely watched as possible defectors on any package with a big price tag.
Governors like Cuomo in New York and Phil Murphy in New Jersey have still said they are counting on the Biden administration to come through, despite all of these variables.
Once the compromise stimulus package is settled in the lame-duck session, various lawmakers' willingness to embrace debt spending could play out more in public comments. Republicans have already changed their posture around government spending since the passage of the CARES Act, returning to a more staunch stance compared to how they approached budgetary issues during the Trump administration as both the deficit and national debt grew, totalling almost $4 trillion.
Until then, state and local governments will have to face cuts in services, layoffs, and other difficult decisions.