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Senate Republican Relief Plan Ignores Needs of States, Schools

July 28, 2020 at 2:45 PM

The Senate Republicans’ new economic relief plan contains no new fiscal aid for states and localities, whose revenues have collapsed due to COVID-19 and the resulting recession. Without that aid, they will continue laying off teachers and other workers and cutting services, which will hurt struggling families, worsen racial and income inequities, and make the recession deeper and longer lasting.

As we’ve written, we project that states face $555 billion in budget shortfalls through fiscal year 2022. Local governments, tribal nations, and U.S. territories, including Puerto Rico, also face large shortfalls. States and localities already have furloughed or laid off 1.5 million workers and cut funding for schools, health care, and other core public investments. Without more federal aid, those layoffs and cuts to fundamental services will only grow, deepening the harm.

The Senate Republican plan ignores this unfolding disaster. While it would provide some new support for schools, two-thirds of that support would go only to schools that reopen regardless of whether it’s safe — a wildly out-of-touch idea that uses schoolchildren in a risky economic experiment. The plan would bar schools from using this money to save the jobs of teachers, librarians, counselors, and other workers.

The plan would let states as well as big cities and counties use 25 percent of the CARES Act’s Coronavirus Relief Fund (CRF) to offset revenue losses, but policymakers should have let states use all of the CRF this way from the beginning, since revenue losses are states’ main problem when it comes to the shortfalls they face. Letting them, months later, use a small part of the funds this way will help them very little. At this point, most of the funds are spoken for, are promised to local governments, or already can be used to pay certain public workers. And small cities, counties, and towns would get nothing; since they received no direct CRF funding, making that fund more flexible wouldn’t help them.

States and localities need substantial additional fiscal aid through multiple mechanisms. Policymakers should:

  • Further raise the share of Medicaid costs that the federal government covers by adding to the 6.2 percentage-point increase in the Families First Coronavirus Response Act of March and extending its duration, as the National Governors Association and local government associations recommend. Increasing federal Medicaid assistance is a particularly effective form of fiscal aid because it frees up state funds that states can then use elsewhere, such as to help them balance their budgets or address other hardship.
  • Provide aid that helps states fund K-12 schools and higher education institutions, without insisting that schools open even if it’s not safe.
  • Provide direct, flexible grants to states, localities, tribal nations, and U.S. territories that they can use to offset their revenue losses.

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