State aid emerges as major hurdle to reviving COVID-19 talks

Federal money for state and local governments is a key sticking point to reviving negotiations over the next coronavirus relief package.

The White House and congressional Democrats are deeply divided over whether states should get more money — and if so, how much.

Before talks collapsed late last week, the two sides were hundreds of billions apart on how much they were willing to put on the table. Democrats want $915 billion, while Republicans are offering $150 billion, the same amount included in the CARES Act from late March.

There are no signs the impasse is thawing, underscoring how difficult it will be to clinch an agreement after negotiations went off the tracks.

Treasury Secretary Steven Mnuchin called the Democratic request for nearly $1 trillion in new money “an absurd number.”

“There’s plenty now, and we’ve put more money on the table,” he said during an interview with CNBC on Monday. “We’re not going to give a trillion dollars for state and local. That’s just not a reasonable approach.”

President Trump and Republicans have lashed out at Democrats, arguing they torpedoed the talks unless they got bailouts for their home states as part of the next COVID-19 relief bill.

“Where have they been for the last 4 weeks when they were ‘hardliners’, and only wanted BAILOUT MONEY for Democrat run states and cities that are failing badly?” Trump asked in a tweet about Speaker Nancy Pelosi (D-Calif.) and Senate Minority Leader Charles Schumer (D-N.Y.) on Monday.

Late last week, the president tweeted that he had “no interest” in providing $1 trillion to state and local governments, adding that Pelosi and Schumer were “only interested in Bailout Money for poorly run Democrat cities and states.”

Senate Majority Leader Mitch McConnell (R-Ky.), who was not in the room for the negotiations, separately lashed out at Democrats on Monday, arguing they wanted to create a “trillion-dollar slush fund.”

“Democrats say nobody gets another dime of relief unless state and local governments get about a trillion dollars in extra money,” McConnell added. “This isn’t about COVID. Democrats think they smell an opening they have wanted for years, to make Uncle Sam bail out decades of mismanagement and broken policies.”

A Treasury Department report found that through the end of June, state and local governments had spent roughly a quarter of the money previously appropriated by Congress.

But Democrats warn that without a significant influx of new money, state and local governments will have to seriously consider layoffs and cuts to essential services in the middle of a public health crisis and recession.

Schumer, speaking from the Senate floor, warned that the “economy is failing” and “state and local governments are cutting essential services.”

“We’re going to see layoffs, and this is not an abstract concept. You know, the Republicans say ‘the blue states.’ A firefighter is a firefighter. A person who drives a bus, a person who picks up the garbage — those are important jobs. It’s not in there,” Schumer said during an interview Sunday with ABC’s “This Week.”

The coronavirus pandemic has pummeled the budgets of state and local governments, which lost much of their tax base when businesses were forced to close or reduce capacity to mitigate the spread of COVID-19.

The progressive Center on Budget and Policy Priorities (CBPP) estimated in early July that state governments would face a total $555 billion budget shortfall between fiscal 2020 and 2022. That figure does not include budget holes impacting city and municipal governments.

Budget holes, according to CBPP data, have already led states to make steep cuts, including reduced funding to schools, housing programs and public transportation.

New York Gov. Andrew Cuomo (D), the chairman of the National Governors Association (NGA), and Arkansas Gov. Asa Hutchinson (R), the vice chairman, issued a joint statement calling for more help for state and local governments and warned the federal government against placing additional spending burdens on the states.

“NGA has requested $500 billion in unrestricted state aid and NGA continues to urge Congress and the White House to reach a quick resolution to provide immediate assistance to unemployed Americans,” the two governors said. “This resolution should avoid new administrative and fiscal burdens on states. It is essential that our federal partners work together to find common ground to help restore our nation’s health and protect our economy.”

The idea of providing any new money for state and local governments has sparked a fierce backlash among Republican senators, who included more flexibility for how the $150 billion previously appropriated by Congress can be spent in their package but not new money. State officials have called the rules for the initial $150 billion in funding overly restrictive, arguing they made it difficult to use the money to respond to the coronavirus.

There are GOP outliers on both sides of the issue: Some GOP senators, such as Rick Scott of Florida, are opposed to both more money and more flexibility for the funds already appropriated by Congress. Others — such as Sens. Bill Cassidy (La.) and Susan Collins (Maine), who is up for reelection — have pitched a bill that would provide state and local governments with an additional $500 billion.

“This is probably the area that is the biggest disagreement amongst Republicans themselves,” Sen. Kevin Cramer (R-N.D.) said during an interview with CNBC.

Resolving the stalemate over more state and local funding, according to Mnuchin, is one of the two biggest hurdles to getting a deal on a coronavirus package. Trump did not take action on the issue when he signed executive orders over the weekend. Unemployment insurance — the other major sticking point, according to Mnuchin — was one of the items addressed by Trump’s executive actions.

Mnuchin noted that the White House has asked Democrats for “a specific compromise on state and local and a specific compromise on unemployment. We have not received proposals on that.” The two sides haven’t spoken since the talks appeared to collapse on Friday.

“I think if we can reach an agreement on state and local and unemployment, we will reach an overall deal,” Mnuchin said. “And if we can’t, we can’t.”