New Virus Relief Proposal Includes Less Aid for States and Localities

State and local governments would see a combined $417 billion in direct federal aid under an updated coronavirus relief proposal that House Democrats revealed on Monday, a sum that is well short of the amount included in an earlier version of the plan, but that also might be more palatable to Republicans so far skeptical of doling out more state and local assistance.

House Democrats in May passed the Heroes Act, which included $875 billion in emergency assistance to states and local governments to help them cover costs related to the virus and to backfill lost budget revenues. But that legislation, and the prospect of funneling that much money to states, counties and cities, has proven to be a nonstarter with Republicans, who control the Senate.

Talks between the two sides over a relief package stalled out in recent weeks, but are now being rekindled with discussions between White House officials and Democrats.

"I think that this will certainly restart negotiations, bring people back to the table,” Mark Ritacco, director of government affairs for the National Association of Counties, said of the new proposal.

Ritacco said the lower dollar amount for aid to counties that is in the new bill is “not going to be sufficient” to cover their full needs based on NACo’s research. 

But he also framed the $89 billion the measure would provide to counties as preferable to them getting no new aid, or only being granted more flexibility to spend federal dollars provided under a coronavirus relief package President Trump signed in March known as the CARES Act. “We urgently need additional aid,” he said.

The U.S. Conference of Mayors applauded the new relief package and urged further bipartisan talks.

“The House leadership has once again laid out a responsible approach that recognizes the depth of this crisis,” Conference of Mayors CEO and Executive Director Tom Cochran said in a statement. “Solving this challenge ultimately requires the House and Senate to come together, and this bill represents an opportunity for Congress and the administration to return to the negotiating table.”

State and local governments around the country are dealing with both weaker tax revenues and unplanned costs due to the coronavirus outbreak. Some places have already resorted to cost-cutting measures like layoffs and furloughs to help keep their budgets balanced. 

How bad the toll will ultimately be for public budgets is still unclear given all the unknowns with how things will play out with the pandemic, and difficulties around making revenue projections amid such an unprecedented event. But there’s a general consensus that state and local government finances are going to take a significant hit.

Moody’s Analytics last week lowered its estimate for combined state and local budget shortfalls to $450 billion through fiscal year 2022. That’s down from a previous estimate of $500 billion. Some similar estimates in recent months have checked in higher.

Overall, the Democrats’ updated Heroes Act features $2.2 trillion in spending, whereas the early version checked in around $3 trillion. Republicans over the summer backed a $1.1 trillion relief package, which did not include new direct aid for state and local governments.

House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin are central players in the revived talks over an aid package. Pelosi said in a letter to other lawmakers on Monday that the updated Heroes Act serves as Democrats’ “proffer to Republicans to come to negotiations to address the health and economic catastrophe in our country.”

Over 200,000 Americans have now died due to Covid-19, the respiratory illness the coronavirus causes. The unemployment rate was 8.4% last month, up from 3.5% in February before the virus struck. The Labor Department said last week that the number of people claiming some form of jobless benefits was around 26 million for the week ending Sept. 5.

In addition to state and local assistance, the Democrats' latest proposal features a range of other provisions, including another round of “stimulus” payments of up to $1,200 per taxpayer, similar to those issued under the CARES Act. Additionally, the measure would restore a $600 a week federal supplement for unemployment insurance benefits that expired at the end of July.

Also included in the bill is $225 billion for education, including $182 billion for K-12 schools. 

It would also authorize grants totaling $25 billion to passenger airlines, $3 billion to airline contractors, and $300 million to cargo airlines, to be used for paying workers and keeping them employed in the industry, which is struggling as people travel less because of the virus.

The CARES Act legislation passed in March set up a special fund that directed about $139 billion in federal aid to states and localities. State and local officials have generally said this money has been crucial for helping cover pandemic-related costs, but some have also chafed over rules for how it can be used.

The Democrats' new bill, like the earlier version, would roll back restrictions that prevent states and localities from using the CARES Act aid to patch revenue losses that have coincided with the virus-driven economic downturn. That’s a key change that state and local advocates have been asking for.

And, as with the first Heroes Act, the updated bill has mechanisms that would channel money directly to smaller cities and counties. This differs from the CARES Act, which limited the big pot of direct federal aid to local governments with over 500,000 residents and states.

To tap the CARES Act relief fund, smaller places had to rely on counties that received the money, or states, to funnel cash down to them.

The plan that Democrats are now backing would distribute about $89 billion dollars to cities and other municipalities using a formula that is similar to the one in place for the federal Community Development Block Grant program.

Of that total amount for municipalities, $62.6 billion would generally go to places with populations of at least 50,000 and $26.8 billion to places that are smaller than that, according to a summary of the bill from House Appropriations Committee Democrats.

The money for smaller municipalities would first flow to states, which would then have to divvy it up within 30 days to their localities.

Ritacco said that, for NACo, the method for distributing the aid funds is almost as important as their total dollar amount. He explained that, under the Democrats’ plan, all of the nation’s counties would get some of the $89 billion county funding allotment, based on their population.

Offering a couple examples using NACo’s estimates, he said a small county with only about 500 residents would be in line to receive around $100,000. In comparison, a county with about 160,000 residents would receive somewhere closer to $43 million. Amounts flowing to the nation’s biggest counties would be up in the hundreds of millions of dollars range.