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Congress split over cash injection for infected state budgets

States struggle to balance books with primary revenue streams running dry.
Published: Aug. 6, 2020 at 6:55 PM CDT
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WASHINGTON (Gray DC) - Coronavirus is leaving state budgets -- from Maine to Alaska -- on life support, but Congress is miles apart on whether and how to help.

The Democratic House signed off on half-a-trillion dollars to backfill budgets across the country months ago, but it’s a non-starter with Senate Republicans and the White House.

“They want to do bailout money for places that are run by Democrats and doing poorly, and it has nothing to do with corona[virus],” said President Donald Trump in a recent interview with Gray DC. He blamed the financial circumstances on, “years of neglect and not good management” in states run by, “the radical left”.

Politically left, center, or right – almost every state is in the red financially.

Mandy Rafool is the group director of the fiscal affairs program with the non-partisan National Conference of State Legislatures. The organization does push for state interests in D.C., but Rafool is a number cruncher, not a lobbyist.

“Heading into the calendar year 2020, states were in really good fiscal condition,” she said.

She says a handful of states had existing problems with under-funded pensions, or big drops in cash flow from oil and gas. But primarily, the problem is the pandemic: drying up income and sales tax revenue streams, “with speed and severity like we’ve never seen before… budgets are in pretty bad shape.”

States did receive billions in the first coronavirus relief bill, but that cash can only be spent containing the virus.

Sen. Patrick Leahy (D-VT) wants to provide more, and let states spend it as they like so long as it’s not on pre-pandemic problems. “The whole country benefits if the states are able to do the things they should do,” he said.

Unlike the federal governments every state other than Vermont is legally required to balance its budget. That leaves three choices: cut costs, borrow money, or raise taxes.

So far, Illinois is the only state to ask for a loan from the Federal Reserve. Every state is looking at across the board cuts, which if enacted, would almost certainly translate into layoffs and smaller safety nets, as well as less funding for schools, public safety, and roads. Rafool and her peers are tracking state efforts to balance their budgets.

Congress’ current debate over the next big relief package includes the question of budget bailouts. But at least for the moment, the sides don’t appear to be close to reaching a deal.

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