Capitol Correspondence - 06.23.20

Big Picture: Businesses Advocating for State and Local Governments to Receive More Federal COVID-19 Funding

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With several states signaling that they may seek cuts to their Medicaid budgets because of the financial toll of the pandemic, our members might be interested in broader political trends that could lead to more federal funding for states. As reported by Politico Pro:

“City halls and statehouses are getting a boost in their scramble for federal aid from an unexpected source: the U.S. Chamber of Commerce.

The Chamber, whose primary job is to look out for big businesses, says if help doesn’t come, states and cities will likely lay off more workers, cut services and raise taxes, deepening the economic crisis. Businesses are concerned, especially about taxes.

As state and local governments struggle with how to plug pandemic-induced budget holes, businesses see a play in helping them get aid from Congress to avoid shouldering more of the burden.

‘Part of our conversation with Republicans on Capitol Hill is that ironically, if your concern is big state government, then the last thing you want to do is force states to replace one-time lost revenue with permanent tax increases,’ said Neil Bradley, the U.S. Chamber’s chief policy officer, in an interview.

Federal Reserve Chair Jerome Powell this week hinted at the need for a local government lifeboat. Millions of people work for states and localities, he told the Senate Banking Committee — sectors that could be forced to make deep cuts absent more help.


Estimates show the deficit nationwide across state and local governments could near $1 trillion. The National League of Cities estimates lost revenue will total $360 billion for cities and counties from fiscal years 2020 to 2022, and the Center on Budget and Policy Priorities, a left-leaning think tank, estimates shortfalls across all state governments will total $615 billion during the same time period.

Without more money, officials will have to choose between missing payments on what’s owed, whether it’s debt or operating costs, or hiking taxes — even if Washington does send hundreds of billions of dollars out to state capitals and American cities.


Financial analysts, including Moody’s Investors Service, have predicted that the federal government can protect local credit ratings by offering more cash assistance to state and local governments. But so far, Congress hasn’t done much to help local governments balance their budgets — even though the biggest employer in many counties nationwide is the government itself.

The public sector was a sore spot in the otherwise surprising uptick in jobs numbers in May, with a 1.5 million drop-off in local government jobs over three months, reflective of just how differently businesses are faring under Congress’s watch.

While companies are benefiting from fairly broad, unrestricted access to capital through the $670 billion in forgivable loans in the Paycheck Protection Program, governments must vie for $150 billion in CARES Act funding, restricted to costs governments incurred due to the coronavirus.


Congress is likely to approve some level of direct aid because red states like Texas — hammered by plummeting oil prices — are suffering, said David Shulman, a senior economist at the UCLA Anderson Forecast.”