Senators Propose $500 Billion State and Local Government Rescue

A Republican and a Democrat in the Senate are proposing a $500 billion fund for state and local governments as part of the next comprehensive rescue package from Congress, to aid parts of the country reeling from the coronavirus pandemic.

As Democratic leaders and the Trump administration negotiate aninterim infusion of aid to small businesses, Democratic Senator Bob Menendez of New Jersey and his Republican colleague Senator Bill Cassidy of Louisiana are looking further ahead.

The pair want to establish the half-trillion-dollar fund to help the states hardest hit by the Covid-19 pandemic. The money would be divided into three tranches and distributed according to formulas that reflect population, infection rates and revenue loss.

Governors and mayors across the country have been pleading with the federal government for additional aid as tax revenues plummet and demands for resources skyrocket. More than 22 million people have been thrown out of work and businesses have shut or severely curtailed operations. At the same time, health care infrastructure has been stretched in many areas.

“The Covid-19 pandemic may not know state borders, but it has certainly hit some states and regions harder than others,” Menendez said in a statement. “The proverbial house is on fire and we need to focus the water on the hot spots, because if we don’t put the flames out, they will only jump until the entire block is up in smoke.”

‘Essential Services’

Menendez is a member of the Senate Banking Committee and Cassidy, a doctor, is a member of the Senate Finance Committee.

“Senator Menendez’s state and mine were hit hard by the Covid-19 epidemic,” Cassidy said in a statement. “We worked hard to make sure state and local governments can maintain essential services necessary for employees and employers to survive. We must protect Americans’ financial future.”

House Speaker Nancy Pelosi and Senate Democratic Leader Chuck Schumer are in talks with Treasury Secretary Steven Mnuchin to replenish a $349 billion fund that allows small businesses to continue to pay their employees amid widespread stay-at-home orders. Money in that fund ran out on Thursday.

The Democrats want additional aid for states and municipalities in the interim package, but Mnuchin said Sunday that’s not currently part of the deal being negotiated for quick approval by Congress.

Phase Four

There’s general agreement in Congress and at the White House that a so-called phase four comprehensive economic rescue package would be needed, following on the $2 trillion package approved late last month.

Menendez and Cassidy said they’re answering the call from the National Governors Association a week ago to establish a much larger “stabilization fund” for states.

Maryland Governor Larry Hogan, the NGA’s chairman, and New York Governor Andrew Cuomo, its vice-chairman, said on April 11 that without at least $500 billion, states would have to curtail essential services. The pair are Republican and Democrat, respectively.

The federal stimulus approved in March provides $150 billion for municipalities’ virus expenses but doesn’t address budget shortfalls and only helps states and cities with populations greater than 500,000. The Federal Reserve announced loans to states and only cities with over 1 million residents.

Three Tranches

The fund proposed by Menendez and Cassidy would be divided into three equal tranches. The first would be would be allocated to states and territories according to their percentage of U.S. population. All states and the District of Columbia would receive at least $1.25 billion from this fund. Cities and counties with populations above 50,000 would also be eligible for aid.

The second and third tranches would be allocated according to a state’s share of the U.S. infection rate and loss of revenue funding resulting from shut-downs and stay-at-home orders.

Menendez and other Democrats are also pushing for the Fed to do more for state and local governments. They’re advocating for a permanent change to the Federal Reserve Act that would allow the Fed to purchase municipal debt on the open market under “unusual and exigent circumstances.”

— With assistance by Amanda Albright

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