On Tuesday, April 14, 2020, the Center on Budget and Policy Priorities released a devastating analysis, States Need Significantly More Fiscal Relief to Slow the Emerging Deep Recession, that indicates that state and local governments are going to require a massive amount of federal funding as those budgets absorb the impact of the COVID-19 virus.
The analysis shows states losing a large range of revenue sources from income, sales tax, and business tax revenue. Some of the losses are experienced in any recession; that is, fewer people working and paying less in income taxes while applications for support such as unemployment increase. This situation, both during the outbreak, and after includes a very steep drop in revenue sources such as sales tax as the society shuts down. The paper cites projections by economists that believe unemployment will peak at around 15 percent in July through September, which would be significantly higher than the 10 percent level during the great recession from 2008-09. Last Thursday, unemployment claims added an additional five and a half million people bringing the four-week total to 22 million.
One of the biggest concerns is in the area of health care. There is the immediate need for health care in response to COVID-19 but also the impact of higher unemployment as more people will need to rely on Medicaid. The Center on Budget paper calls for much more Medicaid support from the federal government to the states: “Securing a provision structured along these lines should be a top priority for the next COVID-19 response bill. FMAP increases, unlike other forms of fiscal relief, automatically adjust based on the costs that states are facing, allowing Congress to direct relief to the most affected states and to continue aid until it’s no longer needed. Crucially, extending an FMAP increase would also make it possible to continue maintenance-of-effort requirements that keep states from cutting Medicaid coverage and eligibility.”
That is why one of CWLA’s top priorities has been an additional increase in the Medicaid matching rate along with an identical increase for the Title IV-E child welfare programs. Medicaid will be vital in keeping some agencies, such as those that provide drug treatment and mental health services afloat, services that can play a vital role in addressing child welfare related issues. The increase in Title IV-E match can also help address the needs of exiting families, including foster, adoptive, and relative caregiving families.
The Center on Budget analysis shows that the service industries hit the hardest by the situation include casino gambling, package tours, sports and entertainment, and school dorms and lunches, all decreasing spending by 90 percent in late March and April.
The analysis also examines Tribal Governments based on higher risks for COVID-19, underlying housing and demographic challenges, ongoing economic difficulties all combining in heavy demands despite the initial $8 billion provided in the first three coronavirus bills.
Other significant suggestions are that in addition to providing states with an influx of funds, they also need to provide direct aid to local governments, including funding that can help support the squeezed transportation systems. The Center on Budget paper highlights the need for more support to the territories and calls on Congress to support the District of Columbia adequately. Washington, DC, is traditionally treated as a state with a population of more than 700,000 people. In the last package, Washington DC was not treated as a state but a territory despite a population bigger than two other states and sending more in taxes to the federal government than 19 or 20 states.