WASHINGTON — As Democrats seek to send President Joe Biden their latest $1.9 trillion pandemic relief bill, federal lawmakers remain deeply divided on the question of whether state and local governments need another infusion of federal aid.
Supporters of the bill — including numerous Republican mayors — say the answer is a clear “yes.” They argue that a number of states, particularly those that rely on service industries and tourism, have seen steep revenue declines, and local governments are facing deeper financial strains as they struggle to expand services with fewer employees.
“Many of our cities have furloughed workers, shrunk their workforce through attrition, cancelled police and fire recruitment efforts, and frozen capital budgets that build community infrastructure — all while absorbing additional expenses to respond to COVID, delivering essential services and reaching out to our communities that have been disproportionately affected,” a bipartisan group of Ohio mayors wrote to federal lawmakers last month.
But congressional Republicans, who also opposed including more state and local aid in the coronavirus stimulus bill approved in December, largely have been unpersuaded. They point to data showing some states outpacing their revenue projections, and argue that sending more financial help to states would unfairly reward those that locked down their economies instead of lifting restrictions on businesses.
“This has nothing to do with COVID. This has nothing to do with the economy,” Sen. Pat Toomey, R-Pa., said during a news conference Wednesday. “This has everything to do with throwing a whole big pile of money at fiscally irresponsible states.”
Those arguments will play out on the Senate floor in the coming days, as Democratic senators attempt to approve the massive stimulus package using a procedure that requires only 51 votes, rather than the 60 usually required to approve bills in the Senate.
The wide-ranging stimulus bill would, among other provisions, provide direct checks of $1,400 to Americans in certain income brackets, extend unemployment benefits and food programs and continue a national pause on evictions. It also would provide $130 billion toward school reopening; $7.5 billion for vaccination efforts; and billions more for child care, through a grant program for child care providers and an expanded child tax credit.
For state, local governments, territories and tribes, the bill outlines $350 billion in direct aid, a figure that includes $195 billion to be distributed to states and the District of Columbia, and $130 billion divided among cities and counties.
Out of the money headed to state governments, most — $169 billion — would be distributed based on the state’s share of total unemployed workers. Another $25.5 billion is divided equally among states.
The dollars for local governments are allocated differently. The $65 billion for cities would be divided based on the Community Development Block Grant formula, and the $65 billion for counties will be doled out based on population. (Funding estimates calculated by the House Oversight Committee for each state and local entity can be found here.)
Those opposing the dollars earmarked for state and local governments have seized on recent analyses that they say show states have been able to weather the economic storm. An analysis by J.P. Morgan found state government revenues fell only 0.12% in 2020, compared to the prior year.
Data compiled by the Urban-Brookings Tax Policy Center found total state tax revenues declined by 1.8 percent from April to December 2020 compared with the same period in 2019.
But Lucy Dadayan, a senior research associate who co-authored that report, says that overall figure masks wide variation among states: 28 states reported declines in overall state tax collections, with those that rely heavily on taxes from services and tourism or fossil fuel production seeing the hardest hits.
Those that have seen increases in their tax dollars are generally states that have progressive income taxes, those that tax groceries, and those that enacted tax increases, according to her analysis.
“Some folks prefer to see it as the glass is half-full. Others prefer to see the glass half-empty,” Dadayan said. “The reality is that states are in different positions depending on their tax revenue structures and their reliance on different industries.”
There’s insufficient data available to track the cumulative effect on cities, but Dadayan and others say local governments are likely in a tougher fiscal spot than states due to their tax bases, which are more likely to rely on income streams like fees from hotel stays and property taxes.
There’s still a lot of uncertainty surrounding what fiscal projections will look like as some semblance of normal life resumes, she said. For example, larger shifts in where employees work could mean changes in commercial real estate leases and a resulting shift in commercial property taxes, Dadayan added.
State and local government employment figures also have remained depressed, even as some state revenues have risen.
Alaska saw the steepest decline in tax revenues in that Urban Institute analysis. One of its senators, Republican Lisa Murkowski, says she’s still not convinced the pending bill would allocate money in a way that’s fair to a state like hers, which has a small population but experienced a deep revenue drop.
“If Congress is going to move this much money out the door, how am I going to make sure that states like Alaska, who have been significantly impacted, who are still in need of rescue, if that’s the term that they’re using for this package, that we in fact get access to those rescue dollars?” Murkowski asked a reporter Wednesday.
Any efforts to tweak the bill could begin to play out on Thursday, when the Senate is supposed to start a lengthy floor debate over amendments to the legislation.
Getting that debate underway could be delayed for hours through a procedural tactic by Sen. Ron Johnson, R-Wisc., who told a Wisconsin radio station Wednesday that he plans to request that the entire bill be read aloud on the Senate floor before the debate begins.
Democrats are seeking to approve the bill in the Senate this week, so it can return to the House for another vote before March 14, when expanded unemployment benefits and a slew of other provisions from the last relief bill begin to expire.
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