Washington lawmakers must agree on this issue before more stimulus money reaches struggling Americans

“Both sides have dug in on their philosophical grounds,” when it comes to supporting state and local governments, said Mark Mazur, director of the Urban-Brookings Tax Policy Center.

Many Republicans think state and local governments should not require support from the federal government that could be used to patch up long-term funding issues, like pension shortfalls.

Democrats, meanwhile, have argued that those areas have suffered revenue shortfalls of 20% or more, and will not likely recover in the short term.

“The lesson from the Great Recession of ’07, ’08, ’09 was that state and local governments were a drag on the economy in 2011 and ’12 because they had such a dropoff in revenues,” Mazur said.

That resulted in reduced spending, layoffs, furloughs and increased taxes. Those efforts were “expedient, but didn’t really help economic growth,” Mazur added.

States have less flexibility because they have balanced-budget requirements, which means they cannot borrow to fund spending because of a recession, said Chad Stone, chief economist at the Center on Budget and Policy Priorities, a progressive think tank.

In the past few recessions, the federal government has provided funding to states so they could maintain Medicaid and other social services, he said.

Without federal aid, individuals and families could also be affected by the shortfalls in other ways.

If teachers and police lose their jobs, for example, they have less money to pay their rent and buy groceries, which in turn affects local businesses, said Kris Cox senior tax policy analyst at the Center on Budget and Policy Priorities.

“There’s really a domino effect if states have to cut their budgets, which they are required to do by law,” Cox said.

But not everyone agrees that more funding is necessary.

“The federal government has already sent hundreds of billions of dollars in aid to states,” said Adam Michel, senior policy analyst at the Heritage Foundation, a conservative think tank.

Most of that funding has not been spent, Michel noted. Meanwhile, not all states face shortfalls. While some like Wyoming have emergency reserves, others like Illinois have nothing saved.

“Another $1 trillion in federal debt to send to state governments just is both irresponsible and unfair to those taxpayers that would be bailing out states that have been making poor decisions for decades,” Michel said.

The best way forward would be for state and local governments to take charge of the crisis and decide who needs help and when to open their economies, he said.

“All of these decisions are best made and best handled at the state and local level,” Michel said.

Individuals and families who are just scraping by may expect more financial aid once politicians do come to an agreement.

“You could easily see another round of stimulus payments,” Mazur said.

Both President Donald Trump and Democrats would tout those payments, which would likely be similar to the first round that were authorized by Congress with the CARES Act in the spring, he said.

Enhanced unemployment benefits would likely also be part of the deal, Mazur said. Both parties will need to agree on exactly how much money to provide. While Democrats have called for extending the extra $600 per week unemployed workers previously received, Republicans have called for whittling that down to around $200 per week. 

Struggling Americans were already having difficulty paying their rents and buying food before the extra $600 weekly federal unemployment benefits ran out, Cox said. 

New legislation can help alleviate that by providing nutrition assistance through expanded Supplemental Nutrition Assistance Program, or SNAP, benefits and helping renters to make monthly payments, she said. It remains to be seen, however, if that assistance will make the cut in a final deal.