Proposed $900 Billion Covid-19 Aid Won’t Help Budget Deficits For States And Cities. But Here’s What They Do Get.

After months of lobbying Congress for budget help, state and local governments will likely have to wait a little longer. Top Congressional leaders are racing to finalize a $900 billion federal aid bill before the holidays and it won’t include a dedicated funding stream for states and cities that are facing fiscal calamity.

State and local governments are facing increased expenses thanks to the coronavirus pandemic and dramatic drops in revenue as a result of the immediate curbing of economic activity, particularly in services and retail. The CARES Act earlier this year helped with increased expenses in the form of direct funding for coronavirus-related spending. But it didn’t address falling revenues for states and localities.

According to the latest data from the Urban Institute, state tax revenues have declined 4.1% from March to October, or $27 billion, compared with the same period a year earlier. Ten states are reporting double-digit declines and the forecasts for next year are similarly bleak. The National League of Cities estimates the pandemic will amount to $360 billion in lost revenues for cities nationwide between 2020 and 2022. And the National Association of Counties estimates a $202 billion total budget impact over the next two years.

With Democrats dropping their demand for direct budget aid in this round of federal stimulus, it’s likely that President-elect Biden will try to take quick action on the matter early next year.

“The stimulus package is encouraging,” Biden said Wednesday at an event in Wilmington, Del. “But it’s a down payment — an important down payment on what’s going to have to be done beginning the end of January into February. But it’s very important to get done.”

But states and localities will get federal help in certain respects. They are vital economic engines and cruical partners in the fight against the pandemic. They’ll run vaccine distributions and they employ essential workers such as nurses, teachers and paramedics. With that in mind, Congress’ proposed aid for states, cities and counties is targeted toward these needs.

State Unemployment Systems: $1 billion for technology modernization and fraud prevention.

Vaccine Development & Distribution: $3.42 billion in direct grants.

• States can use funds for tracking systems and data modernization.
• Takes into account geographical areas with high percentage of cross jurisdictional workers for future vaccine allocations.

Testing and Tracing: $7 billion in direct grants.

• $3.5 billion to states, localities, and territories.
• $2.32 billion to hot spots.
• $827.5 million to be used at the Secretary’s discretion to states, including rural health clinics, school-based health clinics, schools, colleges and universities, research labs, veterinary labs, nonprofits, Indian tribes, local governments, and other entities.
• $350 million to tribes, tribal organizations, urban Indian health organizations, or health service providers to tribes.

Transportation: $15 billion in Transit Infrastructure Grants.

• Funding to support public transit systems across the country that will be used to prevent furloughs, meet operating needs, and keep systems running.

Rental Assistance: $25 billion in rental assistance to states and local governments and Native American tribes through the Coronavirus Relief Fund.

• No less than 90% of the funds must be used for payment of rent, rental arrears, utilities and home energy costs, utility and home energy arrears, and related housing expenses; and up to 10 percent of the funds are available for housing stability services.

 Broadband: $9 billion for states and education providers.

• $6.25 billion for State Broadband Deployment and Broadband Connectivity grants to bridge the digital divide and ensure affordable access to broadband during the COVID 19 pandemic.
• $3 billion for an Emergency Educational Connectivity Fund to provide E-Rate support to educational and distance learning providers to provide hotspots, devices, and other connected devices, and advance digital equity/inclusion.

Education Funding: $82 billion for education providers.

• $7.5 billion CARES Act Governors Emergency Education Relief Fund
• $2.5 billion for private schools
• $54 billion K-12 Emergency Relief Fund
• $20 billion Higher Education Emergency Relief Fund

Hilltop Securities analyst Tom Kozlik noted Thursday that the proposal should be considered a gain for some government sectors (namely, education, transit, health care, and housing). Still, the absence of direct state and local government budget help leaves a hole they will somehow need to fill barring another round of aid in early 2021.

“The lack of aid for state and local governments cuts down on public sector financial managers’ fiscal flexibility,” Kozlike wrote. “If revenues do not keep pace with past budget plans, cuts are likely still coming. As a result, more state and local government jobs could be lost.”