Struggling state and local governments need between $100 billion and $350 billion in a relief bill, as lawmakers hash out how to remediate an upcoming $90 billion municipal shortfall.
During a House Financial Services Committee hearing Thursday morning, economists and government officials agreed that municipalities need more direct aid, but disagreed on the price.
Municipalities need $100 billion, said Dr. Michael Strain, an economist at the conservative think tank American Enterprise Institute.
“An amount close to $100 billion dollars would be appropriate for Congress to give to states and localities, many of whom are in need,” Strain said. “My concern is that not doing so will act as a drag on the national economic recovery because states and localities won’t be able to hire back workers they’ve laid off.”
Some Republican lawmakers have expressed concern that federal aid would be used to bail out states that were already financially struggling before the pandemic.
Congress should not bail out states that use rainy day funds, Strain said, or that mismanaged pension funds. In the next relief bill, states need more discretion on how they spend federal funds, Strain added.
President Joe Biden
The National League of Cities supports the $350 billion from Biden’s American Rescue Plan, saying state and local officials have nearly exhausted their emergency reserves, rainy day funds and reasonable credit options — such as taking out a loan or line of credit from a bank with higher interest rates than municipal bonds. Cities cannot borrow their way out of the pandemic, NLC said.
NLC also estimated a $90 billion revenue shortfall for fiscal year 2021 for local governments and as much as $360 billion in revenue shortfalls through FY 2022.
“What we’re seeing again is the loss of jobs and loss of ability to respond to the COVID-19 pandemic that exists specifically in the neighborhoods and communities of rural, small and urban communities,” Clarence Anthony, NLC CEO and executive director told lawmakers. “The misnomer here is that we’re looking for a bailout — what we’re saying is that if we’re going to bet back on track in America, we must give some support to the level of government directly to respond and to create the jobs and help small businesses and minority-owned businesses and help those that have been left behind.”
States and local governments were left out of the last stimulus package passed at the end of last year.
Municipalities need emergency funding without a minimum population threshold, Anthony said. In a stimulus bill from March 2020 — the CARES Act— $150 billion of direct aid went to counties and cities with populations over 500,000.
NLC also wants allocations of future aid to be built on proven revenue sharing programs like the Community Development Block Grant program, which provides annual grants on a formula basis to municipalities.
If Congress decides to allocate money through a CDBG-like program, Anthony said smaller cities would be able to receive those federal dollars within 30 days.
Expenditures should also be targeted to widespread health and economic consequences of COVID-19, including revenue shortfalls, Anthony told lawmakers.
As of December 2020, there were 373,000 fewer state government workers and a little more than one million fewer local government workers than the country had in February, said Dr. William Spriggs, a chief economist at the American Federal of Labor and Congress of Industrial Organization, said in his testimony.
“We cannot bring all the public resources to bear on this crucial fight with so many fewer public sector workers,” Spriggs said.
“The drop in state and local government employment in 2020 was greater than occurred during all the Great Recession,” Spriggs said. “State government employment is now down below its level in 2002; while local government employment is now below its level in 2003. This is not a level to keep state and local government as a partner with the necessary national actions Americans need to see taken.”
