Every state now faces a budget shortfall due to the pandemic, with estimates that revenue shortages could total more than $200 billion through this fiscal year. As a result, states are considering cuts to basic services, including education, healthcare, and public safety.
Economic activity in every state fell sharply in the first few months of the year, while state and local governments have lost 1.5 million jobs since the coronavirus pandemic began.
This is the backdrop to the negotiations between Democrats and Republicans over money to prop up state and local governments in the next coronavirus relief bill.
Democrats have proposed nearly $1 trillion in additional aid to state and local governments to help make up for the reduced revenue and increased spending. Republicans, on the other hand, have proposed $105 billion more for education funding for state and local governments and nothing further. Some Republican leaders have portrayed the problem as one affecting Democrat-led states only due to mismanagement of funds before the pandemic.
“We’re not going along with the bailout money,” President Trump said on Wednesday about Democrats’ $1 trillion relief package. He added that such spending is “not COVID-related” because, he said, some states and cities have been poorly run for years and are now looking for a rescue.
Many governors, though, from both Democratic and Republican states have pushed back against the narrative that they are seeking bailouts. The National Governors Association has made five requests in three months to the federal government for $500 billion to fund local governments and help rebuild state economies, including most recently at the end of July.
“The rapid economic downturn has left no region of the country untouched and has stressed every aspect of state delivery of critical needs and services to its residents,” said the National Governors Association chairman, Republican Gov. Larry Hogan of Maryland, and the vice chairman, Democratic Gov. Andrew Cuomo of New York, in a joint statement in July.
Cuomo and Hogan also said that states need help from the federal government because state governments, by law, must balance their budgets each year. This has forced governors to cut their budgets, reduce services, and lay off government employees in order to balance their budgets. The governors argue that without help from Congress, which has no requirement to balance the federal budget, states will have to make even steeper cuts at a time when state services are needed the most.
Cuomo said the notion that only Democratic states needed fiscal aid was “the epitome of hypocrisy.”
“You now have Republican states that are suffering worse than Democratic states,” Cuomo said earlier in July during the new surge of coronavirus outbreaks.
“If they want to get this economy back running, you have to fund state and local governments,” said Cuomo.
Republican states such as Louisiana, Kentucky, Florida, Georgia, and Arizona, among others, are facing revenue shortfalls of many hundreds of millions or billions of dollars.
Many Republicans in Congress said that more money for states is not needed because several states have spent only a fraction of the funds available to them to combat the coronavirus from the March CARES Act.
A late Treasury report backed up their claim that most funds have gone unused. The CARES Act established a $150 billion Coronavirus Relief Fund to enable state, local, and tribal governments to cover expenses related to slowing the spread of the disease. But several states have barely tapped into the reserve.
The National Governors Association, though, said that states have already allocated approximately 74% of the funds from the CARES Act, on average, even if they haven’t spent it yet.
In May, Moody’s Investors Service, a U.S. credit rating agency, lowered its outlook for the U.S. state sector to “negative” from “stable” for the first time since the 2008 Great Recession.
“States themselves have strong powers to make budgetary adjustments through cuts, revenue increases, and shifting costs to lower levels of government, but the historic crisis will substantially test the options,” the agency wrote.
