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There is pretty widespread agreement that more federal stimulus is needed to prevent further collapse of the U.S. economy.
“Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” Federal Reserve Chair Jerome Powell said in a speech last week. “This trade-off is one for our elected representatives, who wield powers of taxation and spending.”
While the economic response so far has been “timely and appropriately large,” it isn’t enough Powell warned.
Avoidable business and household insolvency could weigh down economic growth for years, he said. Long-term unemployment could derail the careers of many workers, leaving families with growing debt. The loss of small and medium-sized businesses would prolong the economic downturn and limit the scale of the recovery, when it comes.
The next economic aid package is shaping up to be one that includes money directed to state, municipal and county governments. This is overdue as some Maine municipalities are facing large budget shortfalls and some have already started furloughing or laying off employees, and states will soon have to consider cutbacks.
Nationally, state revenues alone are expected to decline by $650 billion in the next two years, according to April projections from the Center for Budget and Policy Priorities, which are based on preliminary projections from the Congressional Budget Office, which could get worse as the pandemic and its economic consequences continue.
One in six Maine workers is employed in the public sector. In addition to providing vital services, these workers make significant contributions to the economies of their communities and the state.
Unlike the federal government, states must balance their budgets and cannot run a deficit. So, to fill this financial shortfall, states would be forced to dramatically cut services and their payroll. In addition to leaving people without essential services, such a path could prolong the recovery from the recession caused by coronavirus and restrictions put in place to slow its spread.
There is a large gulf between Democrats and Republicans — and therefore between the U.S. House and Senate — about how big this next relief package should be and what it should include. But there is a growing consensus that help for state, local and tribal governments should be included.
The House late last week passed a $3 trillion bill. It includes $1 trillion for aid to states, tribes and municipalities. It also includes another round of $1,200 checks for many Americans, extends the $600 a week additional unemployment benefits until January and allocates $175 billion for relief for renters and homeowners. It includes financial support for farmers and farmers markets, hazard pay for frontline workers and child care funding for essential workers and provides $75 billion for coronavirus testing and contact tracing.
Beyond coronavirus specifically, the bill includes funding for the U.S. Postal Service — which remains under financial strain — for student loan forgiveness, and for election security.
Rep. Jared Golden was one of 14 Democrats to vote against the measure. Rep. Chellie Pingree voted for it. “This was a difficult decision, because I support many provisions in the bill,” he said in a statement. “However, by significantly expanding the scope of the legislation beyond core, urgent needs and insisting on the inclusion of a series of unrelated provisions, House leaders missed the opportunity to make bipartisan progress on these issues. Our communities desperately need relief, but this bill moves us no closer to delivering that relief.”
He’s right that, politically, the bill is too large and includes provisions that are not directly related to the coronavirus pandemic and its impacts, which dim prospects of similar legislation passing in the Senate.
However, as Golden noted, Senate leadership has wrongly been lukewarm to proposals to help states, tribes and local governments. Instead, it has focused too heavily on helping businesses and wealthy individuals (by including tax cuts in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, for example).
On Monday, Sen. Susan Collins joined a bipartisan group of senators in pushing for targeted relief to state and local governments. This is a helpful move and offers a bridge between the House’s bill and the hesitance of Senate leaders. As a former governor, Sen. Angus King has been vocal in calling for more aid to states and municipalities, and for more flexibility in how the public sector can spend that money.
The bill introduced by six senators, called the State and Municipal Assistance for Recovery and Transition (SMART) Act, would provide $500 billion in emergency funding to states, counties and communities, while prioritizing assistance to the areas with the greatest need.
Maine could be among the hardest hit states in the nation financially because of the pandemic, and would receive at least $2 billion under the act, according to Collins. Three pots of money would be divided by population, coronavirus infection rates and revenue losses. It would also give states more flexibility with CARES Act funding, which is needed.
“Dramatic revenue shortfalls will force state and local governments to either increase taxes or slash or suspend important services in health care, education, and transportation construction, which are needed now more than ever in the midst of this crisis,” Collins said in a statement.
“Congress must act now to protect vital services and to prevent widespread furloughs of state and local public servants, including police, firefighters, medical professionals, and educators,” she added.
There is, of course, a lot of middle ground between the House-passed bill and legislation like Collins’. The task for Congress is to find the right mix of financial help — based on economic realities not political winds — that will help Americans weather the coronavirus storm.