By Andrew Duehren and Kate Davidson
WASHINGTON -- How much aid to give state and local governments
has emerged as one of the widest chasms between negotiators in
stalled coronavirus relief talks, with Democrats pressing for more
than $900 billion to fill several years' worth of budget holes and
Republicans seeking a more modest patch.
Top Democrats and Trump administration officials ended formal
negotiations last week with no agreement on another bill, even as
programs providing aid for small businesses and expanded
unemployment payments created in the spring have expired. The
stalemate persisted through the week, with both the Senate and
House now scheduled to be out of Washington through the rest of
August, and White House and Democratic negotiators have rejected
overtures to come back to the table.
While Republicans and Democrats harbor disagreements on a host
of issues in the relief negotiations, the difference between the
two parties is perhaps the greatest on aid for state and local
governments. Facing both increased costs for responding to the
pandemic and a decreased tax revenue caused by the recession, state
and local governments have already started making a number of
spending reductions, including cutting more than one million jobs
from March through July.
House Speaker Nancy Pelosi (D., Calif.) said Thursday that heavy
state and local aid was needed to keep schools and local services
running, and to avoid more layoffs.
"Without an infusion, they will be furloughing or firing
people," she said. "They will go on unemployment insurance. So what
are we saving there?"
Senate Majority Leader Mitch McConnell (R., Ky.) has derided the
Democrats' plan as a "trillion-dollar slush fund" for state and
local governments and said their negotiating stance amounts to
political gamesmanship.
The two sides started far apart and have moved only slightly to
close the gap.
In their initial $1 trillion overall proposal for the next bill,
Republicans included no new funding for state and local
governments, though they did grant those entities more flexibility
in using money leftover from the $150 billion Congress approved for
them in March. But during meetings with Mrs. Pelosi and Senate
Minority Leader Chuck Schumer (D., N.Y.) last week, Treasury
Secretary Steven Mnuchin and White House chief of staff Mark
Meadows offered $150 billion in more funding.
The Democratic negotiators rejected that offer, insisting that
the bill include at least $915 billion for states and
municipalities.
The split between Democrats and Republicans over how much aid
states and cities need is explained in part by how long they think
aid will be needed.
Democrats argue that double-digit unemployment and the risks of
a second wave of outbreaks will put pressure on state and municipal
finances for years to come. Their proposal would cover expected
shortfalls over three fiscal years, well into 2022, when the
Congressional Budget Office estimates the jobless rate will still
be twice as high as it was in February before the pandemic
began.
"There was an understanding that we should do it all in the
beginning, that was what the economists were telling us: Don't do
it little by little," said Rep. Don Beyer (D., Va.), the vice-chair
of the Joint Economic Committee.
Republicans, by contrast, have held firm in their view that the
economy will rebound strongly by the end of the year as a vaccine
becomes available, social-distancing measures abate and businesses
are able to rehire workers laid off earlier this year.
Mr. Mnuchin said in a Fox Business Network interview this week
that the additional $150 billion Republicans have offered, along
with the easing of restrictions on earlier funds, is "more than
enough money for the majority of the states." He said Congress
could approve more aid later if a narrower bill fell short, an
approach Democrats have so far rejected.
Economists have estimated the need is somewhere in the middle of
Democratic and Republican proposals. Moody's Analytics said the
state and local budget shortfalls, including lost revenues and
increased health-care costs, would total $500 billion over fiscal
years 2020, 2021 and 2022, with the biggest hit coming during the
current fiscal year that began July 1. If the economic situation
deteriorates, that number could rise to $750 billion, they
said.
Finding a compromise on the issue will likely come down to
deciding how long the money should last. Rep. Tom Reed (R., N.Y.),
a leader of the bipartisan Problem Solvers Caucus, supports
offering $500 billion to state and local governments -- but doesn't
want the aid to last beyond the immediate future.
"When you start getting into two-, three-year type of windows to
get assistance through today's package -- for two or three years
down the road -- that is opening Pandora's box," he said.
Rep. Dean Phillips (D., Minn.), who faces re-election in a
competitive district this fall, said that Democrats should narrow
the time-frame for the state and local aid to move toward reaching
an agreement.
"Many of us believe that speed is so important we should be
focused on getting us through at least the next sixth months and
then reassess," he said. "The length of the time is one way to trim
the expense."
Some Republicans have been wary of providing any new aid to
state and local governments, calling it a bailout. While some
states entered the pandemic with fiscal challenges, the looming
shortfalls are driven primarily by the virus and are likely to hit
every state to varying degrees, economists say. Most U.S. cities
expect they will face even deeper financial troubles in the coming
year than they did earlier in the coronavirus crisis.
"There is not a situation where states misspent or misallocated
or got themselves into this situation," Federal Reserve Bank of San
Francisco President Mary Daly said on a call with reporters
Wednesday, adding that states will need more assistance. "It's a
pandemic. It's a shock not of their making."
Write to Andrew Duehren at andrew.duehren@wsj.com and Kate
Davidson at kate.davidson@wsj.com
(END) Dow Jones Newswires
August 14, 2020 08:14 ET (12:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.