“It is explicitly not in the package. It’s not even being negotiated right now. I think it is unfathomable. Unfathomable,” lamented New Jersey Gov. Phil Murphy (D), who said in an interview that his state has already borrowed billions of dollars in anticipation of a $20 billion decrease in expected revenue.
Democrats had initially sought $1 trillion in assistance for cities and states this spring before winnowing their request to around $160 billion last week. In the face of sustained GOP opposition, Democrats since then have signaled they are open to conceding one of their signature policy priorities nearly in full, hoping the decision to jettison the local budget aid might help them secure assistance for millions of Americans out of work and countless businesses on the financial brink.
Democrats say cities and states aren’t going to be totally shortchanged: Lawmakers worked to set aside billions of dollars to help them cover more specific needs, including money that would shore up their ailing transit agencies and cover the costs of delivering a vaccine. But these governments appear unlikely to receive the sizable pot of unrestricted federal dollars they initially sought — and Democrats once promised — in a loss that left some mayors and governors scrambling.
Murphy said the absence of additional budget aid would put New Jersey in a “difficult position,” even though Senate lawmakers neared a deal that included other beneficial spending.
“It’s important, we need it, we’ll take it,” the governor said. “It is not enough, unequivocally.”
In Illinois, meanwhile, Gov. J.B. Pritzker (D) on Tuesday announced $700 million in early, anticipated budget reductions in an attempt to close a staggering $4 billion deficit projected to hit his state over the next two fiscal years. Like many governments, Illinois faces the prospect of steep shortfalls in tax revenue resulting in part from the restrictions it has imposed to stop the spread of the coronavirus and protect its public-health system. Pritzker said he had started speaking to local union leaders about furloughs, too.
New Orleans is reportedly considering property tax tweaks to close its deficit — and, failing that, a potential round of municipal layoffs. New York Gov. Andrew M. Cuomo (D) warned once again in recent days about local tax increases on the horizon if he cannot close his state’s nearly $9 billion deficit. And San Francisco has raised the prospect of crippling cuts as it tries to contend with a budget gap exceeding $650 million over the next two years.
Republicans have insisted state and local aid could only be approved as part of a package that includes sweeping legal protections for firms from coronavirus-related lawsuits, a provision strongly opposed by congressional Democrats, leaving lawmakers to embrace setting both measures aside. Many local leaders warned this week that the consequences of that calculation could be vast.
“What you’re saying is you don’t support police, firefighters, nurses, social workers — the very people on the front lines we care very deeply about,” Pritzker said at a news conference announcing his cuts. “That’s what happened, and will happen, as a result of their failure.”
For now, the future of state and federal aid remains unclear, as congressional lawmakers race against the clock to fund the government and provide the fresh pandemic relief package they have promised the country for months. Negotiations intensified starting Tuesday between House Speaker Nancy Pelosi (D-Calif.), Senate Minority Leader Charles E. Schumer (D-N.Y.) and their Republican counterparts, House Minority Leader Kevin McCarthy (Calif.) and Senate Majority Leader Mitch McConnell (Ky.) — offering fresh hope that a deal is at least on the table in the waning hours of 2020.
The uncertain future of local aid also intensified a last-minute fight over emergency lending powers for the Federal Reserve and the Treasury Department. Sen. Patrick J. Toomey (R-Pa.) has insisted on inserting language into the bill that would constrain the ability of the central bank to issue emergency loans to firms and local governments, a provision Democrats have fiercely resisted as limiting the ability of the incoming Biden administration to stabilize the economy.
Conservatives including Sen. Rick Scott (R-Fla.) have led the Republican opposition to what they have called “blue state bailouts,” arguing the provision of additional local aid rewards states’ poor fiscal management and overspending — even though the financial pain has hit Democratic- and Republican-led states alike.
The first hints of a possible concession from Democrats came in public comments this week from Rep. Steny H. Hoyer (D-Md.) and Sen. Richard J. Durbin (D-Ill.), the second-most-powerful Democratic lawmakers in their respective chambers. Both said earlier this month they could jettison the local funding provision if it helped them secure a broader relief proposal that could help workers and businesses before the end of the year.
On Monday, Durbin backed the bipartisan relief package spearheaded by a group of moderate lawmakers that excludes both the state and local aid funding and the liability shield. Sunday on CNN, Hoyer also acknowledged Democrats would not “get everything we want” and suggested disbursing emergency aid was more important than holding firm on state and local funding.
As Durbin’s home state, Illinois, braced for withering budget cuts, the lawmaker stressed in a statement Wednesday he’s “not giving up on funding for state and localities.”
But, he added: “While the fight continues over these issues, we must provide some emergency relief for the American people before we go home for the holidays.”
Even without dedicated support for city and state budgets, the bipartisan $900 billion proposal does contain numerous provisions that would still help local governments, senior Democratic aides stressed this week. That includes a new pot of money to be managed by the Federal Emergency Management Agency, though Democrats and Republicans have warred over the size of the fund, and it was unclear if it would be included in final legislation.
It also sets aside close to $200 billion for jobless Americans, extending unemployment benefits due to expire this year. The spending measures combined could still ease the strain on local governments’ budgets and stimulate their economies, helping to generate much-needed tax revenue, even in the absence of direct federal budget aid.
“The very fact there is going to be any stimulus bill at all — even if it doesn’t include state and local aid — is huge in helping to maintain the tax revenue they are seeing so far,” said Dan White, the director of government consulting and fiscal policy research with Moody’s Analytics.
Without the cash infusion, though, cities and states still may begin 2021 under “bleak” conditions, he said. These local governments will probably begin the new year under the assumption they are “on their own,” which White said could prompt them to consider layoffs, spending cuts and longer-term options, such as tax increases, to break even.
Between March and the end of October, 35 states saw their tax incomes decline compared with the same period a year earlier, according to a December analysis from the Urban-Brookings Tax Policy Center. The drop reached or exceeded 10 percent in six states, including Oregon, Texas and Florida, the center’s researchers found, and topped out at more than 31 percent in Alaska.
The declines are not as steep as some analysts initially forecast in the early days of the pandemic. But they still represent major fiscal strains on state and local governments, which have dipped into their emergency funds, slashed their workforces and reduced other spending in a bid to break even — with more cuts perhaps still on the horizon.
Advocacy groups representing cities, counties and mayors urged Congress repeatedly this week to consider including direct local aid as part of the stimulus package under construction. They said a stimulus that eschews flexible budget help — even if it sets aside new dollars to help states on specific fronts, such as their transit agencies — may leave them struggling to cover the many costs of the pandemic.
“There won’t be sufficient latitude within those funding streams to meet the needs we have today,” said Marcus Molinaro, the county executive for Dutchess County in New York.
Ron Nirenberg, the mayor of San Antonio, fretted that some local governments essentially faced the prospect that they may have to “split the baby” after months of inaction on Capitol Hill — getting some, but not all, of the aid that they sought.
“The truth is, city budgets around the country — from large, medium and small — are providing essential services, public services,” he said. “To suggest we can do stimulus without providing basic public services … is extremely shortsighted.”
“If we have to do multiple rounds of relief, let’s get some relief out there,” Nirenberg continued. “It needs to be comprehensive. It’s a Sophie’s choice that is only going to cost the residents of our country dearly.”