Coronavirus aid should go directly to the people
As federal policymakers consider future legislation to address the economic challenges created by COVID-19, they should take the shortest route possible to get aid to those who need it. Where possible, the assistance should go directly to affected individuals and businesses, rather than through the states. If it’s not feasible for the aid to be sent to recipients directly, states should be held accountable for ensuring that those in need are actually getting it.
These recommendations are not partisan — one of us is a Republican, while the other is a Democrat. But we both believe that states are inefficient intermediaries in the distribution of economic assistance.
California’s experience suggests this is so. States have been tasked, for example, with administering the expanded unemployment insurance benefits included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. But this assistance may not be reaching those who need it, at least not in a timely manner. Our analysis of data from California shows that up to 30 percent of first-time unemployment claims aren’t paid within 21 days, falling far short of federal guidelines and the decency that governments owe residents facing hard times. State officials have blamed outdated computer systems, but at least one other state (Rhode Island) has developed interfaces to their aging computer systems to expand and automate customer service as well as information collection processes.
Beyond their inability to timely deliver aid, states also have a history of diverting large amounts of federal dollars to legacy costs that do not provide services to those currently in need. Retirement spending by California’s state government grew 105 percent over the last 11 years, more than twice the rate at which revenues grew, and 39, 16 and 5 times more than spending on courts, public health and state universities respectively.
Pensions are the better known of two retirement benefits for public employees. The other is for OPEB (Other Post-Employment Benefits), a health insurance subsidy for retired public employees and for some of their dependents — even where the beneficiaries qualify for other programs, such as Medicare or premium assistance under the Affordable Care Act. The costs are enormous. Last year, Sacramento’s school district laid off teachers to maintain OPEB spending and the state spent more on OPEB than on courts.
Congressional Democrats proposed a coronavirus relief package in May that would spend $500 billion on states, and send trillions more in assistance through the states, to be distributed to individuals and businesses in need. But assistance that makes its way directly to beneficiaries rather than through the hands of state officials first is both more effective and fiscally sound.
For example, Congress can bolster and expand access to the earned-income tax credit, a benefit that promotes work and goes directly to the employee through her yearly tax return. As states reopen and businesses look to hire again, this could be an attractive way both to provide additional income and to get Americans back to work. Policymakers should also consider the extension or expansion of loan programs to small businesses, such as the Paycheck Protection Program or the Federal Reserve-administered Main Street Lending Program (which extends loans to businesses that were financially sound before the pandemic hit). Assistance in these programs goes directly to employers, who can then retain payroll and even staff-up where possible.
In some cases, assistance has to flow through states for administrative or other reasons, such as in the case of enhanced Unemployment Insurance (UI) benefits. Similarly, over half of states have short-time compensation programs, which allow employees who have their hours reduced to collect a percentage of the unemployment compensation due to them. These benefits are generally administered through existing state UI systems. While continued support through these programs is important given the ongoing economic challenges many face, the federal dollars that flow through them should not be seen as a blank check by state policymakers. We believe states should be required to demonstrate that assistance is reaching those who need it in a timely fashion and, in cases where a significant percentage is not, face reductions in federal funds sent to states for other purposes. There is no excuse for states to delay in getting federally-provided aid to those who are desperately waiting for it.
Federal policymakers have already spent trillions on economic relief to mitigate the negative impacts of COVID-19 shutdowns. And they’re likely to spend even more. States have clamored for more assistance in future relief packages, but we believe that many of these requests may result in inefficiencies that ultimately cause aid to miss its mark. That’s why Congress and the Trump administration should take the shortest route possible to getting help to those who need it.
Lanhee J. Chen is a fellow at the Hoover Institution and director of domestic policy studies in public policy at Stanford University. David Crane is president of Govern for California and a lecturer in public policy at Stanford University.