HEROES Act would provide $915 billion in state, local aid

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With everyone suffering as a result of the economic shutdown to stem the spread of the coronavirus, the $3 trillion HEROES Act package, which would give $915 billion in direct federal aid to state and local government, appears poised for approval in the House on Friday, but its prospects in the Senate seem slight.

And although the HEROES Act is massive in scope — it's 1,800 pages — it does not include major infrastructure measures or the municipal bond provisions that public finance advocates had hoped for.

As a result, the restoration of advance refunding and direct-pay Build America Bonds, as well as a higher $30 million limit on bank qualified loans, will at best be possible elements of a future infrastructure package.

Many Republicans in the House have signaled they will oppose the plan, with House Republican Minority Leader Kevin McCarthy describing it as a “liberal wishlist that has no chance of becoming law.” Senate Republican Majority Leader Mitch McConnell will decide if his chamber will even vote on the bill.

House Speaker Nancy Pelosi is banking on public pressure to win its passage.

Advocates for the public finance sector agree pressure will build for the Senate to act and note some Republicans there already are sympathetic to another round of federal emergency assistance.

House Speaker Nancy Pelosi is banking on public opinion to propel the HEROES Act.

“A trillion dollars is just what she promised and now it’s what she’s delivering,” said Emily Brock, director of the federal liaison center for the Government Finance Officers Association.

“This is existential; we have hospitals laying off nurses,” said Charles Samuels, an attorney at Mintz Levin, which represents the National Association of Health and Educational Facilities Finance Authorities. “It’s an incredible situation. The bleeding in the nonprofit sector is absolutely massive.”

Samuels expects there will be “a well of empathy” among Republican senators whose states have rural hospitals struggling to remain open. That said, he does expect the House bill will be changed by the Senate.

Senate Republicans could opt to craft their own legislation, using the House version as an empty shell, and insert their own priorities.

The House bill would expand the Federal Reserve's Main Street Lending Facility to include nonprofits.

“That’s important because hospitals and colleges, along with other nonprofits, would be left out of this major funding source entirely,” Samuels said. “They are loans and not grants.”

The bill also loosens the requirements of the Federal Reserve’s Municipal Liquidity Facility, giving local governments more access, said Brock, noting that members of the Public Finance Network were still analyzing the provisions.

The muni provisions may come later. “Conceptually that’s the next bill if there’s a next bill,” Samuels said, adding “it’s quite speculative” whether that will occur this year.

Brock said she’s confident another legislative vehicle will move later this year whether it’s labeled a stimulus bill, an infrastructure bill or tax legislation.

Muni advocates, however, noted that a noteworthy element in the HEROES Act is a two-year suspension of the $10,000 ceiling on the deduction for State and Local Taxes, also known as SALT. That provision, however, is expected to be a nonstarter with the Republican-controlled Senate.

The SALT cap has been a problem in high-tax jurisdictions, such as communities in the New York City metropolitan area.

The bill proposes $500 billion in direct funding to state governments to address the fiscal impacts from the public health emergency as well as $375 billion for local governments, $20 billion for tribal governments and $20 billion for territories, such as Puerto Rico.

The $375 billion for local governments would be split between cities and counties, based on population, according to National Association of Counties Executive Director Matthew Chase.

“We want to see a bipartisan commitment in both the House and Senate,” Chase told reporters in a conference call Wednesday. He noted, counties would receive additional federal aid through other programs, such as Medicaid.

In New York, where counties share the cost of Medicaid health services for the poor by paying $7 billion annually, a one-year increase of 14% in the Federal Medical Assistance Percentage (FMAP) starting July 1 would free up money for other costs, Chase said.

Medicaid is the largest budget item for many state governments and they would receive most of the benefits from the 14% increase. The bill also would provide a one-year increase of 10% for Medicaid’s home- and community-based services (HCBS).

The bill also calls for sending $755 million to the District of Columbia from the CARES Act Coronavirus Relief Fund, which had treated D.C. as if it were a territory.

Elsewhere, there’s $15 billion for transportation through grants to states, tribal governments and territories. State DOTs would receive $14.775 billion by formula under the Surface Transportation Block Grant Program with those funds allowed to cover operational, maintenance, and administrative expenses, including payroll needs. Tribal DOTs would receive $150 million, Puerto Rico $60 million, and other territorial DOTs would receive $15 million.

Another $15.75 billion would be spent on emergency transit relief to maintain basic transit services, with $11.75 billion distributed through formula aid and $4 billion through applications to the secretary of transportation.

State, county and local social services agencies also would share $10.1 billion to provide support and social services.

Local government groups such as the National League of Cities, the U.S. Conference of Mayors and the National Association of Counties have praised the bill.

NACo officials said Wednesday in their conference call that the urgent need for federal aid is pervasive from coast to coast, using North Dakota as an example.

Terry Traynor, executive director of the North Dakota Association of Counties, said despite his state’s low population and wide open spaces, its first coronavirus case was reported on March 11.

North Dakota’s economy depends on agriculture and the oil and gas industries, both of which have been significantly impacted by the pandemic, Traynor said.

North Dakota counties already are projecting a 15% to 18% drop in tax revenue for the current budget year and for 2020-21 the revenue drop may be 20% or more. Counties already are canceling road improvement projects and planning layoffs and furloughs.

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