Pelosi: States, Cities Will Need $1 Trillion in Aid

Pelosi: States, Cities Will Need $1 Trillion in Aid

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Plus: Unemployment claims top 30 million
Thursday, April 30, 2020

Congressional Clash Coming Over Next Coronavirus Bill


Pelosi Says States, Cities Will Need $1 Trillion in Aid

Congress isn’t anywhere close to a consensus on the next coronavirus relief bill.

The Senate plans to return to the Capitol next week, and House Speaker Nancy Pelosi suggested Thursday that her chamber would reconvene the week of May 11 after putting off plans to come back next week, citing guidance from the Capitol physician. But as lawmakers look to add to the nearly $3 trillion they’ve already provided to address the pandemic, it will likely take weeks longer to reach agreement on the details of any new stimulus plan.

In a note to clients Thursday, analyst Chris Krueger of the Cowen Washington Research Group laid out 10 areas negotiators are likely to focus on:

  1. Direct cash payments (and hazard pay for frontline workers);
  2. Tax relief (President Trump continues to talk about a payroll tax holiday, though a delay may be more likely);
  3. Social safety net programs (food stamps and a further extension of enhanced unemployment insurance benefits);
  4. Small business grants/Paycheck Protection Program funding;
  5. State/local government aid (see more below);
  6. Money for hospitals and testing;
  7. Broadband infrastructure;
  8. China/supply chains (tax breaks for re-onshoring);
  9. Sector-specific bailouts;
  10. Pension relief.
The list of sticking points and potential disputes is also long. Here’s a look at the two main hurdles that have emerged early on in the debate.

Additional aid to states: Pelosi said at her weekly news conference Thursday that state and local governments are seeking $1 trillion in aid in the next coronavirus bill, money that would help avoid sweeping cuts to jobs and services that could prolong the economic downturn. “We’re not going to be able to cover all of it, but to the extent that we can keep the states and localities sustainable, that’s our goal,” she said, adding that the additional money was strictly for helping with coronavirus costs and related revenue losses.

GOP lawmakers immediately dismissed Pelosi’s $1 trillion figure. “That strikes me as a pretty outrageous number, just for state and local support. We’ve already provided $150 billion,” Sen. John Cornyn (R-TX) told reporters. Cornyn reportedly said he would support giving states more flexibility in how they can use the $150 billion provided as part of the $2 trillion Cares Act last month, money that was expressly for coronavirus response and not plugging budget holes.

More broadly, President Trump and Republicans say they don’t want to bail out the predominantly blue states that they claim have long mismanaged their budgets. “The broad viewpoint on the right has been that state governments have been so irresponsible for so long that Washington Republicans don’t trust them to disclose the costs that are just from the virus,” Brian Riedl, a senior fellow at the conservative Manhattan Institute, told Bloomberg.

Trump has also suggested he may link additional funding for states and cities to immigration policies. “If you're going to get aid to the cities and states for the kind of numbers you're talking about, billions of dollars, I don't think you should have sanctuary cities," Trump said Wednesday.

Protecting businesses from lawsuits: Businesses want Congress to shield them from lawsuits as they seek to reopen, and Republicans have made this a priority. Senate Majority Leader Mitch McConnell has said that any additional aid to state and local governments would have to be paired with such legal protections, and the Trump administration has expressed support as well. “We don’t need an epidemic of lawsuits in the wake of the pandemic," McConnell told Fox News on Thursday. "And so if we do another rescue package, and we may, we need to take our time, do it right, and it needs to include these liability protections so that all of these brave workers and brave businesses that will be reopening are not subjected to this second epidemic of litigation.”

Democrats, unions and trial attorneys oppose the idea, with some charging that McConnell is trying to use the crisis to advance tort reforms that have long been part of the GOP agenda. “At the time of this coronavirus challenge, especially now, we have every reason to protect our workers and our patients in all of this,” Pelosi said on Wednesday. “So we would not be inclined to be supporting any immunity from liability.”

Unemployment Claims Surpass 30 Million

Another 3.8 million people applied for unemployment benefits last week, pushing the number of coronavirus-related job losses past 30 million, the Labor Department announced Thursday.

Although new jobless claims fell for the fourth week in a row, the sheer size of the numbers highlight the unprecedented nature of the current economic crisis. Economists estimate that the unemployment rate could be somewhere in the range of 20%, a level not seen since the Great Depression.

No sector untouched: Layoffs hit hotels and restaurants first, The Washington Post’s Andrew Van Dam says, but have expanded into other sectors with each successive week. Job losses have now affected manufacturing, construction and retail; management, finance and insurance; and oil, gas and mining. Now public service jobs are beginning to feel the pain, as states move to balance budgets reeling from plummeting tax revenues.

State unemployment funds running dry: The overwhelming number of people claiming jobless benefits is rapidly draining state unemployment funds. New York Gov. Andrew Cuomo said earlier this week that his state could soon run out of funds, having paid $3.1 billion in benefits between March 9 and April 22 to more than 1.4 million workers. “[T]hat’s why federal government has to provide funding, we don’t have money,” Cuomo told reporters.

A February report from the Labor Department showed that 21 states — including California, Texas, New York, Illinois, Ohio and Pennsylvania — had less than the minimum recommended amount in their unemployment reserves to handle a recession, Bloomberg reported Thursday, and some states have already started requesting loans from the federal government to cover benefit payments. Federal loans to states are not unusual during recessions, and the $2.2 trillion relief bill included terms that waive interest on such loans through December.

Europe takes a different path: The unemployment rate is climbing less in Europe than in the U.S., The Washington Post’s Michael Birnbaum reports, due in large part to the different approach taken by the region’s governments. “Many European governments have implemented a subsidy program, pioneered by Germany in the last global recession, under which they pay up to 87 percent of salaries for workers sent home but kept on payroll,” Birnbaum says. As a result, there have been fewer layoffs as government shields both workers and businesses from the severe economic dislocations seen in the U.S.

Still, economists say that while the European approach may be effective it does carry risks. The direct costs are high and the subsidy program would be challenging to operate over a long period of time. In the end, it’s not clear that a federal subsidy can fix the economy if demand remains depressed over the long term.

Quote of the Day

“We’re looking at it in a base case scenario that we recover our money.”

–Treasury Secretary Steven Mnuchin, telling reporters this week that he expects the government to recover all of the funds the federal government has committed to the Federal Reserve’s emergency lending programs. So far, Congress has pledged $454 billion to the Fed, enabling the bank to make trillions of dollars in loans to private businesses and local governments. The Wall Street Journal noted that while the Fed and Treasury ended up making money from the emergency loans provided during the 2007-09 financial crisis, some economists think this time could be different, given the unusual nature of the coronavirus recession.

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