‘It is madness’: Governors rage over stimulus snub

‘It is madness’: Governors rage over stimulus snubDecember 17, 2020

America’s governors seethed on Wednesday over news that a much-anticipated federal stimulus package will not include a bailout for local governments — and accused Washington of abandoning states and cities.

Leaders across the country pleaded with Congress for months to reach a deal that would deliver hundreds of billions of dollars to plug budget holes and shore up everything from schools to emergency services. But the $900 billion emerging deal, expected to include direct checks to Americans and a weekly unemployment boost of $300 through March, will not provide the state and local aid that was requested.

The stimulus agreement comes just as CARES Act funding is drying up, and as states are taking on two logistical nightmares: weathering a winter surge of Covid-19 cases, and distributing Covid-19 vaccines.

New York Gov. Andrew Cuomo, who claims he’s facing a $15 billion budget gap, slammed the news as “hyper-political parochialism” that will bankrupt his state and worsen the burden of responding to the pandemic.

“This is a major problem. It’s also a major disgrace. We have been talking about this for months, since before the election, and then after the election, people were supposed to put their politics aside and actually do their job. Apparently that hasn’t happened,” Cuomo, a Democrat and the chairman of the National Governors Association, said Wednesday at a news conference in Albany.

“I need hospitals and nurses and National Guard to do this unprecedented operation,” he added. “ Now is when you want to bankrupt New York? It is madness. Madness.”

Federal lawmakers had been seeking $500 billion in aid for states and cities earlier this year but backed off as they sought to reach a deal on a financial rescue package by the end of the year.

More recently, a bipartisan group of negotiators drafted language providing $160 billion in state and local aid — an ask House Speaker Nancy Pelosi initially supported — but that too was spiked as she moved closer to an agreement with the White House and Senate Majority Leader Mitch McConnell . Democrats and Republicans are now pinning their hopes on another round of financial aid that provides direct stimulus payments to Americans, and Democrats are hoping for a broader deal once President-elect Joe Biden is in the White House.

In the meantime, if state and local governments — which are obligated to balance their budgets — face a financial squeeze as the pandemic continues, they could be forced to impose severe spending cuts that could leave millions of people out of work.

But, in spite of some of the draconian warnings from Cuomo and others, the financial picture in some states has been less dire than predicted earlier this year. Some states have more cash than they need, and some Republicans opposed to delivering financial assistance to states have pointed to those surpluses.

That’s partially due to reliable revenue streams like property taxes, Federal Reserve Chair Jerome Powell said at a press briefing Wednesday. Lost income was supplemented by the CARES Act, which in turn shielded sales taxes from taking a major hit, Powell added.

“The concerns that we had at the very beginning of really serious, deep shortfalls and massive budget cuts on the part of state and local governments have not yet occurred. What we’re seeing is, it’s different from state to state, and some states are having significant difficulties, others not so much,” Powell said.

Still, the pain is real. Since the start of the pandemic, state and local governments have shed 1.3 million jobs — “a very large number,” Powell said. While many of those people work in schools, and are therefore expected to return to work as the virus comes under control, the financial loss is great.

“It’s actually significantly more than [those who] lost their jobs during the global financial crisis,” he said.

Revenues have been better than anticipated in some states. California has a $26 billion surplus. But leaders there pushed back on an assertion made last week by McConnell that the state simply didn’t need direct aid. That “windfall,” which vastly exceeded midyear projections, was a one-time event.

The money could help the state restore some budget cuts it made this year to higher education, courts and state workers’ pay and to deliver relief to struggling businesses and local governments, state Assembly Budget Chair Phil Ting, a Democrat, said in an interview.

“If you talk to any city in California, they are stretched extraordinarily thin, and they are dying for help,” Ting said Wednesday. If they don’t get assistance soon, there could be mass public-sector layoffs, he argued — and middle-income workers will be “on the unemployment lines waiting for government assistance.”

A large association representing California cities warned of service cuts if the aid doesn’t arrive quickly.

“Cities have been told for months that their time will come — well, our communities are out of time,” said League of California Cities Executive Director Carolyn Coleman.

In New Jersey, Gov. Phil Murphy told reporters Wednesday morning that leaving state and local aid out of the stimulus package is “completely unacceptable.” He said his office has been going “back and forth” with New Jersey’s congressional delegation, but “the more the time is on the clock, the more expensive it gets and the more desperate people are gonna get.

“It’s not good, it puts us in a real bind,” Murphy, who had joined Pennsylvania Gov. Tom Wolf on Monday to call for support for states, said after learning of Wednesday’s agreement.

Among Republicans, the reaction to the stimulus deal has been more measured. Legislative leaders in Florida, where Republicans run both the House and Senate, have long signaled they are tempering expectations about a wave of federal coronavirus cash. They have said cutting the state’s $92.2 billion budget is taking priority over relying on one-time money from the federal government to fill the budget hole, projected to be $5 billion over the next two fiscal years.

Florida House Speaker Chris Sprowls, a Tampa-area Republican, told reporters last month he is hesitant to build revenue expectations on federal money because, in the past, the state has often struggled to get expected federal reimbursements for things like hurricane cleanup.

“So, we never base assumptions on our budget based on what might take place,” Sprowls said. “We will certainly be watching and anxiously waiting to see what the federal government will do. … But as we come into this new [legislative] session, we will look to trim the budget in any places we need to to make up for any kind of shortfall.”

Republican Florida Gov. Ron DeSantis, whose office did not return a request seeking comment, has been focused in recent weeks on rolling out a coronavirus vaccine, and has not spoken about the state’s revenue shortfall or whether Congress should help.

More moderate Republican governors, like Charlie Baker in Massachusetts and Larry Hogan in Maryland, have joined calls for Congress to pass relief for states and cities.

Besides the financial turmoil that followed the initial spread of the coronavirus in the U.S. back in March, the municipal bond market for state and local government debt has had a largely healthy year, with many governments issuing debt or refinancing old projects while interest rates are low, a sign investors are happy to buy up government debt despite the uncertainty.

Challenges remain, however. Delaware State Treasurer Colleen Davis has heard from a number of municipal officials who say they are struggling to keep up with needs, especially with rising admissions at hospitals and first responders needing more personal protective equipment.

Smaller communities may opt to cut essential services if they are low on funds, according to Wisconsin Treasurer Sarah Godlewski. Part of the confusion from Congress, Godlewski said, was the assumption that cash-strapped communities could simply seek support from the municipal bond market, where issuances are up and interest rates are low.

“As we are going into winter, I mean, we’re looking at — are we going to have to be cutting or furloughing snowplow drivers? Or are we going to have to furlough sewer workers or any sort of essential services, because we have to balance our budget at the local level,” Godlewski said in an interview. “One of the most challenging things for local governments, especially rural governments, is that they can’t just go to the bond market as easily as larger communities.”

Some officials, including Rhode Island Treasurer Seth Magaziner, are holding out hope that Congress changes its mind about state and local aid.

“I understand the situation is still fluid, the final legislation is not out yet but, you know, I would hope that they would put politics aside and step up to the moment, and provide states and cities with the resources that we need to continue to address this public health crisis,” Magaziner said in an interview.

Victoria Guida, Anna Gronewold, Bill Mahoney, Eleanor Mueller, Katy Murphy, Matthew Dixon, Shia Kapos and Carly Sitrin contributed to this report.

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