WASHINGTON – Despite President Trump’s recent comments suggesting that a “very generous” second round of economic relief payments to Americans might be announced soon, lawmakers remain divided on the path forward.
“I’m open to anything that helps Main Street if we need to help them going forward,” Rep. Greg Pence, (R-Ind.), told Nexstar Media. “I think it’s a little premature in my state – the economy’s doing great, we’re flat on the virus – so I think we have to go slow, let’s not get ahead of ourselves on a second stimulus package.”
As coronavirus cases spike in states across the nation, state and local budgets are being stretched thin.
A report Wednesday by Moody’s Analytics, a private-sector economic research firm, could also help illustrate a path for bipartisan agreement in Congress on next month’s fifth, and possibly final, COVID-19 response bill.
The report warns that doing nothing to address the economic perils of state layoffs and cutbacks could cost 4 million jobs. But it also says that significantly less money is needed than what’s being called for by House Democrats, who passed almost $1 trillion in help for cash-poor states and local governments as part of a sweeping $3.5 trillion rescue package last month.
The Democratic bill combines $500 billion for state governments — as requested by the nation’s governors — and $375 billion for local governments, many of whom were left out of earlier relief efforts. The Moody study says that level of spending — rejected out of hand by Republicans — is likely beyond what’s needed.
“Well, I’m one who would rather us wait and see how the first $3 trillion that we have spent … what impact it has,” said Rep. Earl “Buddy” Carter, (R-Ga.). “Now having said that, I will tell you if there’s a need for research and development for new medications or vaccinations, by all means, I want to consider that. But at the same time, before we go spending more money, adding to our national debt, let’s see how this first $3 trillion works.”
“The scope of aid being requested is certainly unprecedented in size and warrants significant scrutiny,” Moody’s says. “For example, the $1 trillion in aid recently approved as part of the house’s HEROES Act would be enough to raise the eyebrows of even the most aggressive advocates of fiscal stimulus.”
Instead, the firm — which is respected by both Democrats and Republicans — says that $500 billion in combined aid state and local aid is needed in total under its baseline scenario, with perhaps $120 billion being sufficient to get states through the 2021 fiscal year that starts next week. But it also warns that failure to act would have terrible economic consequences, adding to unemployment and cutting into the gross domestic product.
Doing nothing, the report says, would create a severe economic drag that “could shave as much as 3 full percentage points for real GDP and erase about 4 million jobs.”
The data comes as states grapple with a worsened fiscal picture amid the coronavirus pandemic, and an accompanying deep recession presents governors and state lawmakers with unappealing choices — furloughs, layoffs, higher taxes and cuts to education and other core programs.
California Congressman Jim Costa is in favor of another round of relief payments and warned that the pandemic is not ending.
“Our states, our local governments need the support. They’ve lost twenty percent or more of revenue,” Costa said. “We have spikes increasing in COVID-19 in many states across the country, including California. We need to provide the resources and the support in terms of the stimulus package because we’re not out of the woods yet.”
Unlike the federal government, which borrows freely to finance its operations, states must balance their budgets every year, which typically forces spending cuts in lean times such as now, which both conservative and liberal economists agree is harmful.
Along with another $300 billion or so round of $1,200 stimulus checks, there’s a widespread assumption in Congress that state and local aid will be at the center of next month’s COVID-19 rescue bill.
“I support very strongly trying to get money back into the bloodstream of the country,” said Rep Emanuel Cleaver, (D-Mo.). “Think about this, young people have no jobs during the summer, particularly poor kids, and their parents don’t have jobs. I mean that is something we should not tolerate in the United States. We need to pass the HEROES Act or a significant portion of it.”
“Without a doubt, we owe it to the American people,” said Rep Jesus Garcia (D-Ill.) “The high unemployment rates across the country argue for at least one more stimulus check and an extension of unemployment insurance benefits.”
Pelosi’s bill would also deliver a whopping $500 billion to states and $375 billion more to localities, figures that are sure to get whittled down by the GOP-controlled Senate, led by Mitch McConnell, R-Ky.
But skeptics of a big state aid package say it would be sufficient, for now, to provide greater flexibility for using the $150 billion state aid installment enacted in March and have states use up their rainy-day funds, which had been filled up with more than $100 billion in cash during good economic times.
Rep. Tim Burchett, (R-Tenn.), called for a safe return to jobs instead of continued extra unemployment bonuses.
“In Gatlinburg Tennessee right now they’re offering a $1,000 signing bonus for servers in restaurants because if you’re getting paid $500 or $600 more a month to stay home, dadgummit, you’re going to stay home, it’s just human nature,” Burchett said. “We’ve got to get away from that, we’re depleting the Treasury at a record pace, trillions of dollars in debit. America needs to get back to work.”
Skeptics of a big state aid package say it would be sufficient, for now, to provide greater flexibility for using the $150 billion state aid installment enacted in March and have states use up their rainy-day funds, which had been filled up with more than $100 billion in cash during good economic times.
“We may ultimately need large state bailouts, but it’s premature to commit hundreds of billions of dollars before we have exhausted all alternatives. There’s about 20 or 30 states that have the reserve funds to get through the next year,” said Brian Riedl, a budget and economic analyst at the conservative Manhattan Institute.
But with a spike of COVID caseloads in states like Texas, Florida and Arizona, fears are growing of a worse-than-expected second wave and lingering economic destruction to state and local budgets that would be more damaging to the economy and require more federal aid to mitigate the potential loss of 6 million jobs.
“If we really get hit with a second wave and the economy remains shut down, then, yes, we will need a few hundred billion dollars for states. But I think, right now, the combination of rainy-day funds and more flexibility with pandemic grants can cover most of the gaps.”
The Associated Press contributed to this report.
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