The Need for Financial Aid to America’s States and Territories During the Pandem... (EventID=110984)

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Connect with the House Financial Services Committee Get the latest news: https://democrats-financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/FinancialDems/ Follow us on Twitter: https://twitter.com/FSCDems ___________________________________ On Thursday, September 10, 2020, from 12:00 p.m. (ET) Full Committee Chairwoman Waters and Ranking Member McHenry will host a virtual hearing entitled, “The Need for Financial Aid to America’s States and Territories During the Pandemic: Supporting First Responders, Assisting Schools in Their Efforts to Safely Educate, and Preventing Mass Layoffs." - - - - - - - - Witnesses for this one-panel hearing will be: • The Honorable Michelle Lujan Grisham, Governor, State of New Mexico • The Honorable Tim Walz, Governor, State of Minnesota • The Honorable Laura Kelly, Governor, State of Kansas • The Honorable Lourdes “Lou” Leon Guerrero, Governor, Territory of Guam • Douglas Holtz-Eakin, President, American Action Forum Overview State governments have faced significant costs in fighting the COVID-19 pandemic. Since March, more than half of state legislatures have convened to pass emergency appropriations and approved over $3.5 billion in unanticipated expenditures to support testing, prevention, the purchase of scarce medical supplies, and other public health costs related to containing the virus. Overall state spending needs are expected to increase considerably, especially in health care and education, as schools take steps to adapt to distance learning. Meanwhile, the economic recession caused by COVID-19 has led to a sharp decline in sales tax and other critical sources of state government revenue. Based on the Congressional Budget Office’s forecasts for economic outlook in 2021, the total budget shortfall for state and local governments next year is projected to approach $1 trillion.3 According to the Center on Budget and Policy Priorities, state budget shortfalls are estimated to total $500 billion before 2022, which is nearly double state government shortfalls in the first two years of the Great Recession. On March 27, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law, which included $150 billion in assistance to help local governments respond to the COVID-19 emergency. While the latest jobs report showed that 300,000 government jobs were restored in July, the total number of government employees was still 1.1 million lower than it was in February. On April 11, the National Governors Association issued a bipartisan statement calling for Congress to pass $500 billion in additional assistance.6 On May 15, the House of Representatives passed H.R. 6800, the Heroes Act, which would extend at least $915 billion in aid to state and local governments within one year. Lessons from the Great Recession State government spending during economic downturns tends to have a “pro-cyclical” effect. When the economy enters recession, states lose revenue they would normally collected from revenues sources like sales, income, and hotel occupancy taxes. To account for these revenue declines, state governments cut their budgets and raise taxes, which leads to public sector job loss and saps economic growth. According to the Hutchins Center, “cuts in state-financed spending lowered real GDP growth about 1.2 percentage points between 2009 and 2012.” Testifying before the Financial Services Committee on June 17, Federal Reserve Chair Jerome Powell affirmed economic research indicating that cuts by state governments prolonged the Great Recession. A 2012 paper published by the International Monetary Fund found that state budget shortfalls in the immediate aftermath of the 2008 financial crisis grew as high as $174 billion in 2010, and that federal expenditures made through the American Recovery and Reinvestment Act (ARRA) were inadequate to fill the gap from lost tax revenue. Many states never fully recovered from the Great Recession. A 2019 study found that nearly half of states were spending less than they had prior to the Great Recession: support for higher education had been cut by 13%; infrastructure spending was at a 50-year low; and there were 132,000 fewer noneducation state government jobs than there had been in 2008. Reduced spending by state and local governments, especially after spending from ARRA funding was exhausted and Congress reduced federal expenditures through the Budget Control Act of 2011, may partially explain why the recovery from the Great Recession was slower than previous recessions. Coronavirus Relief Fund and Need for More Direct Aid Title V of the CARES Act directs Treasury to administer the $150 billion Coronavirus Relief Fund and distribute funds directly to governments in states, territories, and tribal areas. $139 billion is allocated to state governments, with allocations based on... Hearing page: https://democrats-financialservices.house.gov/calendar/eventsingle.aspx?EventID=406866