Senate Finance Committee chair wary of providing more federal aid to states, localities

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The chair of the Senate’s powerful Finance Committee said he is open to discussing more flexibility for how states and localities access federal aid, though he is skeptical that issuers actually need the aid they are asking for.

Sen. Chuck Grassley, R- Iowa, made those comments Wednesday on the Senate floor, casting doubt on the prospects for additional funding states and municipalities say is crucial for their financial stability.

“At this point, I believe that it may be useful to entertain more flexibility in what has already been approved,” Grassley said.

Municipalities have asked for more flexibility in how they spend their federal money, such as using funds to cover revenue losses.

Grassley added that there may be a need to make sure states send money they received to counties and cities.

"I have to say that I’m somewhat sympathetic to the idea of giving states and localities more flexibility in how to use the $150 billion of direct relief provided in the CARES Act," said Sen. Chuck Grassley, R-Iowa and chair of the Senate Finance Committee. "Beyond that, I’m more skeptical, but open to considering options."

“There may even be a reasoned case for limited additional funding to states and localities in the near term though, as I said, I’m a bit skeptical,” Grassley said. “But approving half-a-trillion to a trillion of additional funds for uncertain future needs right now, to cover unknown state and local needs as far out as two years down the road, just isn’t the responsible or prudent action to take.”

In a May survey from the National League of Cities, 32 states were found to be withholding federal funding to local governments — money approved under the Coronavirus Aid, Relief and Economic Security Act signed into law in March.

The CARES Act provided a total of $150 billion to states, territories including the District of Columbia, as well as local governments with populations over 500,000.

Only 5% of counties are eligible for money under the CARES Act, said Mark Ritacco, deputy government of affairs at the National Association of Counties.

“To the extent that states are not sharing CARES act dollars, those states are rightly concerned about their own budgets so that should tell us something,” Ritacco said. “That should tell us that states are not sharing that money because they are really, really worried about what the future holds.”

Ritacco said he disputed Grassley’s underlying presumptions, adding that very few if any counties have said they were fine.

Some counties had high revenue losses due to lockdowns and decreases in economic activity as well as high healthcare expenditures to keep up with the surge of COVID-19 cases.

COVID-19 cases have increased drastically in some states in the last month or so since they have reopened. In Texas, new confirmed cases grew from 730 cases in the beginning of April to 8,076 as of July 1, according to data from the Texas Department of State Health Services.

There is a lag of counties understanding how much they will lose, Ritacco added.

Moody’s Analytics said last month states and localities likely need as much as $500 billion dollars of additional aid.

In a CNN op-ed, Mark Zandi, chief economist at Moody’s said if states and local governments get federal aid it would help the broader economy.

“Dr. Zandi promises so-called bang-for-the-buck magic to save states and localities, but the federal government would have to pony up perhaps half-a-trillion more to start the magic," Grassley said. "I am skeptical of some of those promises, to put it mildly."

Ritacco is hopeful that other lawmakers will see a need for more federal funding for counties to help jumpstart the economy, especially during an election year.

“In an election year, everyone wants the economy to be good, so we’re hopeful that Sen. Grassley’s colleagues will see a tremendous need that counties have and help us jumpstart the economy,” Ritacco said.

Federal funding is not nearly enough to make up for declining revenues and increasing expenses due to the pandemic, said Irma Esparza Diggs, senior executive director of federal advocacy at the National League of Cities.

“As many states begin to pause and reverse their reopening efforts amid a surge in cases, we are going to see even more revenue declines and more expenses as local governments work to contain further spread of the virus,” Diggs said. “This puts our fragile national economic recovery efforts in an even more precarious position, and underscores the need for Congress to provide direct federal funding to municipalities, the vast majority of which were not provided aid through the CARES Act.”

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Coronavirus State and local finance Washington DC NACo NLC