Researchers argue for strong state, local aid in federal COVID plan

Attacks on proposed new federal aid to state and local governments are based on misinterpreting the data and minimizing the depth of national need, according to two researchers.

Republicans — including Wisconsin Sen. Ron Johnson — have criticized the $1.9 trillion federal COVID-19 relief package now in the Senate because it includes long-sought additional aid at both the state and municipal level.

But the assertion, in the face of the pandemic’s ongoing toll to health, life and the economy, that state and local governments “don’t need additional support is a myth,” write Amanda Kass and Philip Rocco in a Governing magazine opinion article published Wednesday.

That myth, they continue, is “premised on a highly selective interpretation of the data and a refusal to acknowledge the hollowing out of state and local government capacity over the last few decades, particularly in the areas of public health and education.”

Kass is associate director of the Government Finance Research Center at the University of Illinois-Chicago. Rocco is on the faculty at Marquette University in Milwaukee.

By Thursday, there were already signs that the Senate version of the bill will cut into some of what the House had set aside for state and local funds.

“Within Congress, economic orthodoxy dies hard,” Rocco tells the Wisconsin Examiner.

The stakes are high and the evidence is readily available to support robust assistance as states and municipalities grapple with losses from the pandemic, he and Kass argue in their article.

The slow recovery that followed the 2008 Great Recession “should provide federal policymakers with a powerful lesson,” they write. “Limited support for state and local governments slows economic recovery. But political pressure for fiscal austerity often re-emerges before the economy is out of the woods and before adequate stock is taken of state and local needs.”

Kass and Rocco point out that the critics of more state and local aid ignore the tattered economic and social fabric that COVID-19 has exposed.

Since the pandemic started, Rocco says, policymakers would “talk about state and local fiscal crises as if the only thing that mattered was revenue — and as if the expenditure side of public finance didn’t exist.”

Reports that state and local revenues had rebounded unexpectedly prompted skeptics of aid to suggest it wasn’t needed. But that ignores “spending needs created and exacerbated by the pandemic,” Kass and Rocco write — needs that budgets can’t predict, made worse by years of deferred infrastructure maintenance and underinvestment in government programs.

The impact of that chronic underinvestment isn’t evenly shared. Instead, “the consequences of austerity have long been displaced onto already marginalized, predominantly minority communities,” they write. “ While COVID-19 has made a wider swath of society feel the effects of disinvestment, the crisis has exacerbated racial inequities, which is why the issue of spending and whose needs are not being met is so central.”

Failing to account for those realities, Rocco says, “really does violence to the experience of state and local government.” 

Unemployment insurance programs have grappled with aging technology and increased burdens on applicants in many states — including Wisconsin — that result in fewer accepted claims. Schools need up-to-date ventilation systems to keep the air fresh and reduce the risk of virus transmission, but the year before the pandemic, a federal report found 41% of districts needed system upgrades.

“The way that these dollar amounts in the federal budget are arrived at is not necessarily by going in asking governors and mayors what exactly their needs are,” Rocco says. Instead, national lawmakers rely on statistics “that are actually incapable of representing the problem.”

Opponents of relief for state and local government claim that previously provided funds haven’t all been spent yet. According to Rocco and Kass, however, “This overstates and misinterprets the extent of unspent federal money.”

One reason is that money that has been committed, but not yet spent, hasn’t shown up in the reports that the U.S. Treasury produces on the spending for the $150 billion in aid states and municipalities received in 2020.

Another reason that money hasn’t been spent as quickly, however, is changing federal guidelines on how it could be used. In a Government Finance Officers Association survey that Kass and Rocco cite, 70% of recipients sharing in that pool said restrictions “were the largest barrier to the allocation of federal funds.”

Based on the details emerging Thursday, Rocco finds that history might be about to repeat itself. Under the Senate rewrite, “the rest of the aid is going to be subject to fairly tight restrictions and requirements,” he says — which could slow funds from getting out where they could re-energize the economy.

“If we listen to state and local officials about the difficulties they experienced with these programs, the restrictions are the biggest hurdle,” Rocco says — a hurdle that looms once again.

“I think that it’s unfortunate,” Rocco says, “because I think what happens is when these restrictions are in there, and you make it harder for state local governments to use the money, it can perpetuate the myth that we don’t need it.”