Bipartisan House group proposes $500 billion state, local aid

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A bipartisan group of House lawmakers on Tuesday proposed $500 billion in new federal aid for state and local governments as part of a $1.5 trillion compromise package of COVID-19 emergency relief spending.

The plan offered by the Problem Solvers Caucus is an attempt to break the impasse in negotiations between the Trump administration and Senate Republicans with congressional Democrats.

“What brings us together — 25 Democrats and 25 Republicans — is our shared goal of finding a pragmatic solution — a bipartisan path forward — to help get negotiators to return to the table,” said Rep. Josh Gottheimer of New Jersey, the Democratic co-chair of the caucus.

Gottheimer described the package as “a common-sense framework to get help and resources out to American families and businesses.”

But a group of House Democratic committee chairs issued a statement several hours later saying the proposal "falls short of what is needed to save lives and boost the economy," which effectively means it won't reach the House floor for a vote.

The committee chairs termed the bipartisan proposal by centrists lawmakers as a retreat from the policies contained in the stalled HEROES Act.

There has been growing doubt whether the two sides can reach a compromise before Congress adjourns until after the November election.

Speaker Nancy Pelosi addressed that concern Tuesday morning, telling CNBC’s Jim Cramer, “We are committed to staying here until we have an agreement and agreement that meets the needs of the American people.”

Pelosi said Democrats are “optimistic” that the White House “will understand that we have to do some things.”

However, congressional Democrats have set a bottom line of $2.2 trillion and the administration’s topline has been $1 trillion.

The $1.5 trillion package unveiled by the Problem Solvers Caucus attempts to bridge those differences by automatically increasing its package by another $400 billion if COVID-19 hospitalization rates remain high and the progress in developing a vaccine does not meet certain benchmarks in early 2021.

On the other hand, the $1.5 billion also could be reduced automatically by $200 billion if those trends are better than expected. Those reductions include $130 billion less for state and local governments.

The proposed $500 billion for state and local governments would be apportioned with $250 billion for states and $120.3 billion for local governments to address documented revenue shortfalls through 2021 along with $130 billion for future documented pandemic expenses.

“The risks of going back into recession would be high” if Congress does not pass another “fiscal rescue package” for state and local governments, said Moody's Analytics Chief Economist Mark Zandi.

Additionally, state and local governments would be allowed flexibility in how they use the $130 billion which the group estimates as unspent from the CARES Act.

Other pieces of the package include $145 billion for schools and child care; $316 billion for direct assistance to families and individuals; $120 billion in unemployment aid; $100 billion for coronavirus testing and healthcare; $290 billion for small business and nonprofits; and $52 billion for broadband, agriculture, the U.S. Postal Service and the U.S. Census Bureau.

Without additional federal aid to state and local governments, the nation faces the prospect of a double-dip recession later this year, Moody’s Analytics Chief Economist Mark Zandi has predicted.

Zandi repeated that prediction Tuesday during an online presentation to the National Conference of State Legislatures.

“The risks of going back into recession would be high” if Congress does not pass what he described as a “fiscal rescue package,” Zandi said.

Moody’s Analytics projects a revenue loss for state and local governments of $201.2 billion in 2021 and an increase in Medicaid costs by $81 billion for a total of $282.2 billion.

Moody’s estimates the multiplier impact of every $1 in federal aid to state and local governments to be $1.34 while the impact of cutting the payroll tax is no more than 1. The impact of cutting corporate taxes, on the other hand, is only 35 cents.

The economy already has recovered about half of the drop in the gross domestic product caused by the pandemic and about half of the 22 million jobs that were lost.

But Zandi said it would not be until late 2023 that the economy will be fully recovered.

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Coronavirus State and local finance Washington DC