Business & Lobbying

Struggling states warn coronavirus stimulus falls short

The aid to states and cities in the $2 trillion coronavirus stimulus package is receiving backlash from the communities and officials hit hardest by the outbreak, who say it is not enough for the challenges they are facing.

Overall, the package includes $150 billion in aid to states and localities to help those governments handle increased spending on coronavirus matters. Each state is set to receive at least $1.25 billion, with more populous states receiving more funding.

But experts and officials argue that the amount falls short and that states will need much more help to make it out of the financial crisis caused by the coronavirus pandemic.

“It’s not enough. The size of the aid is not enough for the scale of the challenge,” Amy Liu, vice president and director of the Metropolitan Policy Program at Brookings told The Hill. “I think it has to be a lot bigger to meet the scale of … [what] these states are experiencing as a result of the increased unemployment and state lockdowns in most of these communities.”

The criticism from governors and mayors over the package was quick.

New York Gov. Andrew Cuomo (D), whose state is the epicenter of the pandemic and is slated to receive $5 billion in funds, quickly blasted the deal as “irresponsible” and “reckless” on Thursday. The comments saw Cuomo split from home-state Sen. Charles Schumer (D), the upper chamber’s top Democrat, who helped negotiate the stimulus package.

Washington, D.C., Mayor Muriel Bowser (D) also expressed outrage over the deal, which gave her city $500 million. Bowser claimed the bill shortchanged the District of Columbia because it isn’t a state and called on Congress to “right this wrong.”

And in California, Gov. Gavin Newsom (D) praised the bill as providing “critical support” even as he warned that “California businesses and residents will also need additional federal support to weather this economic storm.”

Aid to states and local communities was one of the last unresolved issues as Treasury Secretary Steven Mnuchin shuttled between the offices of Senate Majority Leader Mitch McConnell (R-Ky.) and Senate Minority Leader Schumer to hammer out a deal. 

A Democratic aide said the terms were held up because the administration expressed strong opposition to providing the aid.

Schumer in a floor statement on Wednesday touted the eventual deal, saying the money would help “states and localities who are so hard-pressed because of all the new expenses that COVID-19 puts upon them and because they’re not getting the resources they usually get. Taxes are delayed until June.”

But the funds failed to assuage governors and local officials and put Cuomo at odds with Schumer.

Cuomo on Wednesday said his state was already “looking at a revenue shortfall of [as much as] $15 billion. This response to this virus has probably already cost us $1 billion, and it will probably cost us several billion dollars when we’re done.”

He called the funds, in particular the $1.3 billion for New York City, “a drop in the bucket, as to need.”

“States always think they need more money from the federal government, but here it does seem that New York is the epicenter of the virus and their further requests for federal funding are justified,” said Nicole Kaeding, vice president of policy promotion and economist at the National Taxpayers Union Foundation.

Schumer, though, has pushed back on the criticism that the bill shortchanges New York.

“He’s disappointed that it only got $5 billion for the state government, but there are small businesses in New York who need money. There are unemployed people who need money. There are hospitals who need money. There are nurses who need money,” Schumer said on Wednesday in response to Cuomo.

“We got $4 billion for the [Metropolitan Transit Authority], just what they asked for,” he added, referring to the agency that runs New York City’s public transportation, including the subway. “So this bill has been very, very good for New York.”

The minority leader said the package should give $100 billion to New York state once all its benefits are counted.

The level of funding for Washington, D.C., has also attracted criticism. Wyoming and Vermont, two states with smaller populations than D.C., will receive $1.25 billion each from the package. 

Bowser called on lawmakers to treat D.C. more fairly, noting that it has a larger population and that residents pay more in taxes compared with some other states.

Lawmakers are already discussing a fourth coronavirus bill after unemployment claims spiked to more than 3 million and with reports that the virus is emerging in other locations. Schumer said on Thursday the “odds are high” Congress will need to provide more relief.

Kaeding said that Congress needed to ensure the states receive more help as the pandemic continues.

“I do think that there will be more relief for states in upcoming bills,” she said. 

But Kaeding also acknowledged the challenges for leaders at both state and federal levels in determining how much states would need as the economy freezes up and revenue plummets.

“We … don’t have a sense from state budgets yet what they need,” she said. “The difficulty, of course, is states have balanced budgets requirements, so not only are their spending increasing quickly, [but] their revenue is decreasing quickly.”

The full scope of the economic damage is still unclear, with much of the public practicing social distancing and businesses closing their doors.

Thirty-one states rely on income taxes as their greatest sources of revenue, but fewer Americans will have paychecks coming in because of the outbreak, meaning a decrease in tax revenue. Some states such as Florida and Washington have no income tax and rely on sales tax, but those revenues have also taken a hit. 

“Traditionally, in recessions, state revenues fall and sales taxes are the most stable source of revenue because consumption changes a bit but individuals still buy many things. … That assumption may not be true for this recess,” Kaeding said. “Individuals are still buying food, they are still paying for housing, but those two things are generally not taxed by sales taxes.”

Other experts said that Congress should consider different formulas for determining which localities should get the most funding as the virus spreads and new hot spots, such as Chicago and New Orleans, see their coronavirus cases grow.

The criticisms also go beyond the dollar amounts to how the funding is managed and distributed.

Liu said the current relief package does not give funds to states in the most efficient way.

The $150 billion will be in a state stabilization fund, which will be administered by the Treasury Department.

“I’m surprised we are creating a new state stabilization program, to be administered by Treasury, which will require time to be set up, with new regulations, before getting the funding out the door,” Liu said. “In short, we are unnecessarily creating more bureaucracy when efficiency is needed, tapping existing programs with agency staff who are familiar with working with states and localities on their emergency needs.”

She said it would have been more efficient to run the funds through the Community Development Block Grant, a Department of Housing and Urban Development vehicle used in major disasters. 

Liu also noted that many of the grant funds come with restrictions. 

“It’s not just about new dollars on the table. It’s about waivers so these dollars can be used in the circumstances that are today,” she said.

State and local officials will be watching lawmakers in Washington closely as they tackle those challenges in subsequent bills.

“I’m interpreting this phase three bill as a wait-and-see bill. It gets relief out the door,” Kaeding said. “But Congress … will need to come back and provide additional relief for states, individuals and businesses.”

Tags Andrew Cuomo Charles Schumer Coronavirus Gavin Newsom Mitch McConnell Muriel Bowser New York New York City Steven Mnuchin Stimulus

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