MNI EXCLUSIVE: Congress Spars Over Local Aid as Job Cuts Near

Congressional Democrats and Republicans are opening up a second front in their fight over extending federal aid to tackle Covid-19 beyond extended jobless benefits, a USD1 trillion gap in funding to help state and local governments avoid massive layoffs as they struggle with balanced-budget requirements.

Governors and mayors are seeking federal help to keep their workers on the payroll as the pandemic has dried up tax revenue. Senators told MNI that divide over funding in some ways is even deeper than the divisions over extending the USD 600 a week unemployment top-up.

Republican senators point to a Treasury Department report saying state and local governments have used less than 25% of the USD150 billion in funds allocated by Congress in March to address coronavirus. While USD139 billion has been paid out so far only USD34 billion has been used for costs incurred, with some states using little to none of their money.

State treasurers tell MNI that strict federal rules designed to ensure the funds are spent on Covid-related expenses has kept much of the money bottled up.

FLEXIBILITY?

Democrats proposed nearly USD1 trillion for local governments, but President Donald Trump and Republicans are resisting sending the states and cities more cash, preferring flexibility over the USD150 billion previously allotted.

"If the case can be made that you need it for reasons outside of maybe poor fiscal management up to this point then that would be a conversation, but I don't think that would be the case," Mike Braun, an Indiana Republican and a member of the Senate Budget Committee, told MNI.

"The 25% flexibility is a start. It is appreciated but we need another simple round of pure revenue replacement aid," said Maine State Treasurer Henry Beck. His state is taking a wait-and-see approach looking at the negotiations in Washington before considering layoffs.

"We've offered to give them real flexibility in the USD150 billion that is already out there. They haven't spent that yet," Senator Mike Rounds, a South Dakota Republican and a former governor of that state, told MNI.

FIX THEMSELVES

Aid to states and localities will become more of a sticking point from here and local governments have to make tough trade-offs, he said. Ultimately, the localities will have to "fix themselves," he said.

By June, about 1.5 million fewer people were working for governments in the U.S. compared with February, according to federal data.

And their revenues dropped USD140 billion in fiscal year 2020 and could decline by as much as USD350 billion in 2021, according to a Cleveland Fed study.

"We need flexibility," Wisconsin State Treasurer Sarah Godlewski said. "But it's not one for the sake of the other...The sheer volume [of the drop in revenue] is significant."

NO TAX HIKES

"This is going to be a drag on the economy regardless," Braun said when asked about the potential for further layoffs.

Local officials have indicated plans are to avoid tax increases and further debt but to balance budgets through layoffs. "Depending on how deep our cuts will be there is a situation now where we will need to be cutting services to balance our budget. It will not be tax increases," said Jeff Williams, mayor of Arlington, Texas.

"For right now USD150 billion will at least give us the opportunity to see where we are at and see how quickly the economy will rebound as the vaccines are integrated into this mess. Because when you get the vaccines in that's when the economy really will start to focus again," Rounds said.