SACRAMENTO, Calif. — Suddenly cash-strapped states and cities are scrambling to head off unprecedented fiscal calamity and are ramping up pressure on Congress after being passed over this week by the latest federal stimulus deal.
Local officials — some still facing challenges with hospitals overwhelmed by the coronavirus pandemic — say the need for a bailout is growing more dire by the day, even as Senate Republicans indicated Wednesday that help wasn’t coming.
Los Angeles has already dipped into its reserves, and is planning massive cuts to city services and salaries, with Mayor Eric Garcetti calling his upcoming budget “a document of pain.“ New York City is facing a $7 billion budget gap; the state is in the hole some $15 billion and Gov. Andrew Cuomo predicts 20 percent cuts in state aid across the board. And New Jersey, which just received its first credit rating downgrade in years, rescheduled its fiscal year rather than face a June budget deadline.
Across the country, unemployment is skyrocketing, city workers are being furloughed and teachers unions are gearing up to fight against layoffs as school districts prepare to see huge drops in funding. Youth programs, street repair plans and public safety jobs — unthinkable cuts just months ago — are all on the chopping block.
Many had hoped help would soon arrive from Washington after Democrats in Congress held out on a new stimulus bill for weeks to, in part, secure $150 billion in aid to backfill local budgets. But the $484 billion coronavirus relief package that’s expected to pass Congress on Thursday only offers assistance to small businesses, hospitals and money to ramp up testing.
The chances of getting that funding in the next federal stimulus bill — buoyed Tuesday by supportive comments from President Donald Trump — plummeted on Wednesday as Senate Majority Leader Mitch McConnell said state and local governments should “use the bankruptcy route.”
New Jersey Gov. Phil Murphy, the chairman of the Democratic Governors Association, said his breath was “taken away“ by McConnell‘s remarks on the Hugh Hewitt Show. He pleaded with Congress to send direct cash relief to states.
“You have my word we won’t go bankrupt. But you know what will happen? We will gut the living daylights, in every state of America, out of the services — the exact services — that our citizens need right now,” Murphy said Wednesday at a press conference in Trenton. “We will just cut, cut, cut and cut. We won’t go bankrupt, senator, but we will leave our citizens in the lurch in their most profound hour of need.”
Congressional Democrats have promised to continue fighting for state and local government relief in the next round of stimulus funding, setting up another major partisan battle.
Until funding arrives, local leaders from California to New York will face unprecedented revenue losses and start to revisit tactics from the Great Recession in order to cut costs.
“I get small businesses. I get airlines. How about police?” New York Gov. Andrew Cuomo said on Tuesday, pointing to other recipients of the stimulus funding. “How about fire? How about health care workers? How about teachers? We’re not going to fund schools? I don’t get it. I don’t get it. That’s why I’m not in Washington.”
Cuomo, whose state has been hit the hardest by the virus, said later Tuesday that he had a “productive“ meeting with Trump that included talks about funding for the states. Trump, asked about the interaction at his own news conference, confirmed he was supportive of using federal money to help states and local governments.
Cuomo, too, said he was floored by McConnell‘s bankruptcy comments.
“That is one of the saddest, really dumb comments of all time,” Cuomo said during a radio interview on WAMC, adding sarcastically: “OK, let’s have all the states declare bankruptcy. That’s the way to bring the economy back.”
Governors and mayors alike say they will continue to hound Congress, and that the federal government needs to refocus its priorities before local budgets are decimated as tax revenues plummet due to the halt to business and life as we knew it.
“It’s undeniable that the city will bear the burden of the economic impacts created by COVID-19, but we reject any notion that the burden is ours alone,” said Lauren Huffman, a spokesperson for Chicago Mayor Lori Lightfoot, in an email.
Illinois Rep. Sean Casten painted an upward battle for local governments, and said as long as EMTs, firefighters and teachers are at risk of losing their jobs because of suffering local budgets, the historic amount of funding in the CARES Act is not enough.
“For reasons that are somewhat puzzling, it has become somewhat partisan to get resources to states. It’s very bipartisan to get resources to businesses within states, but to get money to actually flow into state governments and local governments to make sure all those things we depend on are funded, that’s become a partisan fight,” Casten said. “And so far, we haven’t had as much success as we really need to. And it’s frustrating.”
In Los Angeles, Garcetti warned that this recession could be worse than 2008‘s downturn and accused members of Congress of holding local governments hostage by bailing out industries instead of the cities.
“Don’t let America‘s states and cities die. Step up, and bail out America, as you’re bailing out American corporations, too,” Garcetti said.
A pension crisis is also looming. Top lawmakers in New Jersey and Illinois, two states with woefully underfunded pension systems, are calling on the federal government for assistance, saying investment losses will be compounded in the coming weeks.
Some governments could struggle to make employer contributions — an outcome that could take years or decades to recover from.
“The pension crisis will get worse if state and local governments grappling with revenue shortfalls and a lingering economic slowdown caused by the coronavirus are unable to make required pension payments,” New Jersey Senate President Steve Sweeney said in a statement.
Another point of contention: only local governments with populations over 500,000 are receiving direct funding from the last $2 trillion relief package, which included aid to cover expenses associated with fighting the outbreak.
That means in California, which is projected to receive $15.3 billion from the CARES Act, only six cities and 16 counties in the nation’s most populous state will receive funding. Eligible local governments, including San Francisco, Los Angeles and Sacramento, will get nearly $6 billion, while the state will receive the remaining $9.5 billion.
California Gov. Gavin Newsom said he has been in “constant talks” with Speaker Nancy Pelosi, another California Democrat, and wants to see that population threshold go down to 50,000.
Despite billions stacked up in reserves following the last recession, California budget officials have warned that the estimated losses could be on par with 2008 — especially because of the state’s progressive income tax structure that relies heavily on top earners and capital gains.
In a letter to Pelosi earlier this month, Newsom asked for $1 trillion in “direct and flexible” relief to state and local governments, but said this week that that request is modest.
“I think people across this country are hopeful, particularly those smaller municipalities, that the next round of stimulus will consider those smaller jurisdictions,“ Newsom said. “The good news is I think this is broadly shared across the spectrum. The challenge, of course, is the more money you put for cities, the less for states, and we don’t want to be in this awkward dance of fighting for limited resources.“
In a letter to New York’s congressional delegation last week, Mayor Robert Kennedy, the president of the New York Conference of Mayors, and conference Executive Director Peter Baynes also called for that threshold to be lowered.
“COVID-related economic decline is not an urban problem. It’s a problem in every city, village and town,” the letter states.
Local leaders who have received federal money are fighting for it to be made more flexible. Relief funding given to state and local governments must be spent on “necessary expenditures incurred due to the public health emergency,” and are overseen by the Department of the Treasury.
Sacramento Mayor Darrell Steinberg posted a picture of the $89.6 million stimulus deposit to the city from the federal government to Twitter, saying he hopes to use it to prop up the goals of a sales tax increase that was approved by voters in 2018 that focuses on economic development in the city’s most disadvantaged neighborhoods.
“It can’t be used to fill budget holes, and must be spent by Dec. 31,” Steinberg said in the post. “My goal is to use it to carry out the #MeasureU goals of growing our economy in [a] way that uplifts all our neighborhoods.”
Alexander Nieves, Anna Gronewold, Katherine Landergan and Shia Kapos contributed to this report.