Trump Executive Actions Won’t Alleviate, and Could Worsen, States’ Budget Woes

President Trump’s executive actions of last weekend do nothing to alleviate the enormous budget crisis that’s battering states and localities nationwide, and one of them — extending unemployment benefits — could make the crisis worse, depending partly on how details shake out in the coming days. More generally, as we have said, his actions are woefully inadequate to respond to COVID-19 and the deep recession, and they raise dangerous questions for our democracy.

States face a projected $555 billion shortfall through 2022 that’s driving them to enact painful cuts to education and other services, as well as layoffs and furloughs for public employees that exceed those of even the Great Recession of a decade ago. Moreover, the combination of the surging virus and the weakening economy appear poised to increase state budget shortfalls even further. These trends are hurting families and communities nationwide – in Republican- and Democratic-led states alike -- and likely deepening the already severe recession.

That’s why state and local leaders from both parties have consistently pushed federal policymakers to approve sizable amounts of flexible fiscal aid to help families and communities weather the storm. After the onset of COVID-19, which quickly weakened the economy and drove the state budget shortfalls, federal policymakers provided some initial fiscal support, but it was far from sufficient. Due to overly restrictive and sometimes conflicting guidelines, states can only use about $100 billion of that initial aid to offset revenue shortfalls and limit cuts in services, which is far short of the shortfalls that states face. By contrast, the Heroes Act, which the House passed in May, includes nearly $1 trillion in additional aid to states, localities, tribes, and territories — including an important increase in the federal share of Medicaid costs that the federal government would pay — but the Republican-controlled Senate has refused to take up that legislation.

The President’s recent executive actions included no such aid. What’s more, his memorandum to extend federal unemployment benefits could make the situation worse by creating new costs for states to help finance or deliver the extended unemployment benefits. As the National Governors’ Association put it, states could incur “significant administrative burdens and costs” by having to create a mostly new process for delivering benefits, and states could be on the hook for a share of the added benefits as well.

That’s because, as originally announced, his executive action would give unemployed workers an extra $400 a week (down from the $600 they received until the enhanced benefit expired July 31) for about the next six weeks — but only if states pick up $100 of the tab. An email that the federal Labor Department sent out Monday, however, appears to give states the option to avoid this $100 matching cost, which would drop the weekly benefit to $300. Given that states face an unprecedented budget crisis, many or most likely will choose this route — thus dropping the new benefit to $300, or half of what laid-off workers previously received.

At the same time, the Trump Administration is encouraging states to use other funds or their share of the Coronavirus Relief Fund (CRF), from the CARES Act of March, to meet the full match requirement. But states don’t have extra money to spend due to the fiscal pressures they face, as described above, nor is diverting coronavirus relief money a viable option.

The CRF gives states $110 billion and provides other aid for localities, tribes, and territories. The funds can pay for COVID-related medical care, personal protective equipment, testing, and other COVID-related activities, as well as to cover the costs of helping people, businesses, and others affected by the virus — such as by helping people who lost their jobs pay the rent or helping small businesses avoid bankruptcy. The CARES Act gives states until December 30 to spend the money, recognizing that they will still be facing costs later this year to contain the virus and help those affected.

But states have already allocated most of the CRF money that the Administration claims is “unspent.” That is, the money is already promised to hospitals fighting the virus, businesses struggling to stay open, people who lost their jobs, local governments swamped with COVID-related costs, school districts trying to educate children safely, and others. These entities are counting on the money to cover costs that they’ve already incurred or will incur in the near future. Without it, their circumstances will grow more dire.

Maine, for example, allocated $176 million from the CRF to school districts to help them reopen during the pandemic. Not surprisingly, since the school year hasn’t yet started, school districts haven’t spent most of that allocation. But schools are counting on it and would find it harder to reopen safely if states took up the President’s suggestion to move the funds.

In short, states and localities desperately need more federal aid to avoid laying off more teachers, health care workers, and others, and cutting more services that people and businesses need. They also desperately need the aid they’ve received so far to contain the virus and protect residents from its further spread.

The Trump executive actions completely ignore these needs and could make the situation worse. Rather than pursue this counterproductive approach, the President and his team should work with Congress to craft a comprehensive economic relief package that protects workers and their families without undermining vital funding for state and local services.