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‘Tidal wave’: States fear fiscal disaster as Congress slow-walks aid

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The most vulnerable states for seeing their federal aid cut are those that already carried some of the lowest credit ratings.

Senate Majority Leader Mitch McConnell and New York Gov. Andrew Cuomo couldn’t be farther apart in their views of how Congress should help states recover from the recession. But their states are among those with the most to lose if the situation gets much worse. 

While every state is feeling the pressure, the most vulnerable ones are those that already carried some of the lowest credit ratings even when the economy was at its best — including Illinois, New Jersey, Connecticut and Kentucky. Even New York, which had good credit, has seen its outlook downgraded and will suffer without more federal help.

That’s left some local officials bitter that the federal government has been willing to cut blank checks to businesses regardless of how they are run but views helping state governments as unacceptable “blue state bailouts.” Now, with Congress debating another economic relief package that is unlikely to contain the $500 billion in aid that state officials were hoping for, they’re warning of a looming fiscal disaster, not only for themselves but for the country. 

“If Congress underestimates the economic tidal wave that is coming, even by the smallest of margins, we are all going to be swept away,” said Illinois State Treasurer Michael Frerichs. 

Already, the U.S. Labor Department has reported that some 1.5 million state and local government jobs were lost from February to June, adding to the tens of millions of private sector jobs that have been shed nationwide.

Nowhere is the politics of state aid more complicated than in McConnell’s Kentucky, which Donald Trump won by 30 points in the 2016 presidential election. Next fiscal year, its shortfall could be as high as $1 billion, according to the state’s budget director. 

McConnell has largely stayed out of the debate since setting off a political firestorm — and drawing a blistering rebuke from Cuomo — in April with the suggestion that states might use bankruptcy as a way to emerge from a fiscal crisis – a step that they’re not even allowed to take under federal law.

He walked that back a week later, saying there “probably will be” more funding from Congress.

Kentucky Gov. Andy Beshear — a Democrat — averted deeper cuts or layoffs this budget cycle by instituting hiring freezes and asking for a 1 percent reduction in agency budgets government-wide after coronavirus shutdowns suggested a potentially massive shortfall. But he warned this month that without additional federal support, cuts in the next cycle will need to go deeper than even during the Great Recession. Beshear has urged Congress and the Kentucky delegation, including McConnell, to approve more state funding.

Cuomo said the characterization that only Democratic states needed budget help was “the epitome of hypocrisy.” 

“You now have Republican states that are suffering worse than Democratic states,” he said earlier in July of the new surge of coronavirus outbreaks. “If they want to get this economy back running, you have to fund state and local governments.” 

Kentucky and New York have already begun either reductions in services or payment slowdowns, as have New Jersey and Illinois. 

While Connecticut planned to fill an operating deficit estimated to exceed $1 billion using reserve funds, the state ultimately balanced its budget through a combination of higher-than-expected revenue, tax increases and spending reductions, including by postponing service increases. Still, that the rainy-day fund is expected to quickly dry up in the future with deficits projected to increase.

The finances of those and other state governments have been upside down since the wave of economic shutdowns squeezed tax revenue. A federal delay in the tax filing deadline led many states to follow suit, which also slowed money coming in. At the same time, a historic plunge in crude oil prices further decimated oil-rich states like Alaska and North Dakota that rely heavily on royalties.

While the federal government has been able to print money to blunt the crisis’s economic blow to businesses, workers and the unemployed, states don’t have that option. Already, credit downgrades for some like New Jersey and Illinois mean future borrowing could be more costly, disrupting recovery plans. 

Still, state officials were hoping Congress would provide enough in direct grants to fill budget holes after lawmakers agreed to dole out hundreds of billions in forgivable loans to small businesses in the March stimulus bill. Then in May, House lawmakers agreed on legislation that included $250 billion to backfill state budgets.

Legislation proposed by McConnell’s Republicans on July 27 didn’t offer much room for optimism, however. The legislation calls for $105 billion to go to states for schools — but two-thirds of that is dependent on maintaining certain levels of in-person instruction.

The National Governors Association slammed the lack of additional state aid in the GOP package as “disappointing” in a statement Wednesday from Republican Gov. Larry Hogan of Maryland, the group’s chair, and Cuomo, the vice chair. 

Sen. Pat Toomey (R-Pa.) said in an interview on CNBC Tuesday that it was unlikely Congress would spend much more on local budget issues: “There’s a lot that’s already been done,” he said.

Toomey said money appropriated to states has not even been fully spent and that the Federal Reserve has set up a short-term government credit facility “that has not been drawn significantly but that is available.”

recent report from the Treasury Inspector General backs up Toomey’s argument. The report found that as of June 30, states nationwide had only used an average of about a quarter of the funds from the CARES Act, the $2 trillion economic relief package Congress approved in March. But the National Governors association countered that states have already allocated approximately 74 percent of those funds, on average.

The next agreement will probably fall short because unemployment benefits, stimulus checks and additional small business loans — not state budget deficits — have dominated the debate. 

One ray of hope for the states: Legislation proposed by Sen. John Kennedy (R-La.) in May would give them more discretion to use a $150 billion coronavirus relief fund to cover operating expenses. Congress explicitly prohibited the use of the fund for that purpose when the money was appropriated in March.Language similar to Kennedy’s bill was included in the Finance Committee portion of the Republican Senate package.

But Sen. Rick Scott (R-Fla.), a former governor of Florida, criticized the increased spending flexibility in the Republican plan. “What I don’t want to do is bail out the states,” he said to POLITICO.

“We’re not crying wolf out here in the states about some of the drastic measures that would be necessary, and we’ve got proof in past recessions that we will cut,” said John Hicks, Kentucky’s budget director. “Federal fiscal relief is just critical for us to be able to maintain education, health and public safety.”

For its part, New York’s fate is tied financially to New Jersey and Connecticut — both states in worse economic shape — putting the financial health of its massive public transportation network at risk.

The Metropolitan Transportation Authority, which also provides rail service to Connecticut, is burning through $200 million a week.

New York officials said the state has already reduced spending by $4 billion since April through a combination of hiring freezes, new contracts and pay raises, as well as holding back 20 percent of funds to some of the state’s larger cities.

“This means lower spending for police, schools, health care, roads, courts, and support for our most vulnerable neighbors,” Freeman Klopott, a spokesperson for the New York State Division of the Budget, told POLITICO. “The Federal government must act to provide states with the resources we need or the negative impacts of its failure to do so thus far will only deepen.”

New Jersey has cut $1.2 billion in spending and delayed some major payments to schools and pensions. On top of that, Democratic Gov. Phil Murphy pared operating costs and grants and has ordered 15 percent reductions across departments. The governor is trying to get clearance to borrow up to $9.9 billion, but Republicans are challenging him in court.

“I would hope this is the moment right now for Congress,” Murphy said at a daily coronavirus press briefing in Trenton. “The next three weeks is do-or-die.” 

“I can’t tell you exactly what happens to our services or programs without that federal cash, but it’s ugly,” he said. 

Financial analysts sense big trouble in Illinois, which has the worst credit rating in the nation. Even before the crisis, the state had to slow down payments because expenditures exceeded revenue, and the coronavirus has stalled them even more, according to the comptroller. The state was hit with a series of negative financial assessments in April, further imperiling future borrowing.

Democratic Gov. J.B. Pritzker signed a budget with a $6 billion deficit in June and has warned that layoffs could come without significant extra federal funding.

In a sign of how bad things have gotten, the state is among the few to have accessed short-term credit from a Federal Reserve emergency facility set up in March. Advocates for more state aid have criticized the Fed’s lending option as too expensive, but the terms were actually more favorable for Illinois than the open market because of its poor credit. 

With all the election year pressure, governors fear Congress will opt for the approach taken in the Great Recession: Let states cut their budgets and gripe about a dragged-out economic recovery later. But this time around, it’s clear that governors are laying the groundwork to blame Congress. 

“It doesn’t matter what the political party of the state’s legislature or governor is,” Hicks of Kentucky said. “We’re all in the same boat together.”

This blog originally appeared at Politico on August 3, 2020. Reprinted with permission.

About the Author: Katherine Landergan covers the state budget, tax policy and labor issues for POLITICO New Jersey.

About the Author: Kellie Mejdrich is a reporter for POLITICO Pro Financial Services.


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These Workers Don’t Get Aid and Are Going Hungry. A Tax on New York Billionaires Could Help Them.

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Coronavirus cases continue to climb across the Southern and Western United States. In New York, previously the nation’s epicenter, many of the residents reeling from the economic consequences are excluded from any government assistance.

Clara Cortes lives in Long Island with her family. Both she and her husband tested positive for the virus, and while Clara has since recovered, her husband spent 54 days in the hospital. Now he is in a rehabilitation center dependent on a ventilator to breathe. “My husband is fighting for his recovery right now and it’s all because of the simple fact that he went to work to support his family,” Cortes said in a virtual press conference. Cortes is out of work, and without steady access to income, it is difficult to pay her mortgage, her husband’s medical bills and support her family. Her husband used to work in a supermarket. “It was there that he got sick because he was not allowed to use a mask,” she said. “When he had it on, the owner told him to take it off because he would scare the customers. He complied and, unfortunately, has suffered a lot.”

Families across New York state are facing food insecurity. As an undocumented immigrant, however, Cortes does not qualify for state or federal financial assistance excluding her from unemployment, food stamps or the coronavirus relief bill. Cortes’ daughter and husband are both U.S. citizens, but mixed status households were excluded from the meager assistance the bill provided.

State Senator Jessica Ramos and Assembly Member Carmen de la Rosa have proposed legislation to create an excluded workers fund. The bill would enable workers who do not qualify for unemployment insurance—such as undocumented workers like Cortes—to receive $3,300 in monthly financial assistance. As New York faces a budget crisis, the bill would produce revenue by taxing the capital gains of billionaires’ assets.

Cortes is a member of Make the Road, an immigrant rights organization advocating for the bill. For Angeles Solis, organizer at Make the Road, a major obstacle for the bill is the lack of any indication of when the legislature will reconvene “to pass lifesaving legislation for our communities.”

The bill would also benefit informal workers such as day laborers, street vendors and sex workers. For many transgender individuals facing widespread discrimination, sex work is one of the few available work options that has been heavily impacted by the pandemic.

Alisha King is an advocate with the Bronx Sex Worker Outreach Project and a trans woman and former sex worker. King noted the funds would “help [trans sex workers] survive because they won’t be out there in the streets or online trying to find some way to make money dealing with this john and that john. It would keep them housed and keep them fed.”

Advocates anticipate Governor Cuomo’s opposition to the worker’s fund. While the governor’s office did not response to requests for comment, Cuomo has consistentlyopposed increasing taxes on the wealthy despite support from both the public and legislators. He has said providing financial support to undocumented immigrants would be fiscally “irresponsible.”

Congresswoman Alexandria Ocasio-Cortez (D-N.Y.) expressed her support for the fund in a statement to In These Times noting that undocumented immigrants “pay a greater share of their income in state and local taxes than many big corporations and billionaires. Yet, during this pandemic they have been left alone to struggle to get food and financial aid, and to make matters worse, we are on the cusp of an eviction crisis.”

Desis Rising Up and Moving (DRUM) is a community organization building the power of working-class South Asians and Indo-Caribbean members. During the pandemic, their members (who are mostly undocumented) were forced to choose between risking exposure to Covid-19 in order to work low-wage jobs or deal with the financial implications of unemployment. Two members, Rajkumar Thapa and Rashida Ahmed, chose the former and died from the coronavirus. As proponents of the bill, it is clear to DRUM that the current  crises members are facing are a result of neoliberal capitalism. They describe capitalism as “governments and systems that serve the rich, and punish the poor.” Fahd Ahmed, the executive director of DRUM, explained that neoliberalism builds on capitalism to cut spending on social needs and systems such as safety net programs.

“For a state like New York which claims to be progressive, has a large immigrant and undocumented population, why in the past did we never think of setting up economic support systems for undocumented immigrants?” said Ahmed, “The only answer is that, under the neoliberal logic, that wouldn’t make sense. Why invest in people?”

Lexii Foxx is a 29-year-old Black transgender woman and sex worker. Foxx said she receives $162 in government assistance every month via food stamps, but living in Brooklyn, it’s not enough to survive. “I have a lot of regulars that have actually stopped coming,” Foxx said referring to clients. “As far as the roads, it’s not as many cars that’ll be out. I’m even working corners. Just a little bit helps. I don’t need much. I just need to stay afloat.”

When Foxx’s cousin recently passed away she prepared to return home to North Carolina. With no savings, she needed to work to pay for her trip despite the risks. Tahtianna Fermin, co-founder of Black Trans News, which supports and uplifts Black trans sex workers, was able to intervene when she learned of Foxx’s plans.

“Thank god, with the organization, people have been donating. We were able to give her $200 so she wouldn’t have to go out and sell her body for the night,” Fermin said. “She was so thankful she started tearing up and that touched my heart. That right there shows me that these girls need this money. These girls need this help.”

Black trans sex workers, many of whom are homeless, were also in a precarious economic situation before the pandemic. New York has the highest ranking of per capita homelessness in the country. The bill itself captures how massive wealth inequality has become the new normal: Taxing the investments of the 112 billionaires residing in New York state would produce $5.5 billion in revenue, which is more than the $3.5 billion cost of the entire worker bailout fund. While $200 from a Black trans led organization (currently soliciting donations) made Foxx emotional, billionaires across the country have increased their wealth by $584 billion.

Ahmed described Cuomo as the “quintessential representative” of “the neoliberal logic,” citing his persistent austerity measures such as cutting Medicaid or education funding. Absent federal aid, Cuomo has warned of 20% cuts to public schools, healthcare and local governments.

“Investing in people is not going to maximize profits for the corporations and for the elites,” Ahmed said. “The more precarious we leave people, the further we’re able to keep wages lower, have easily controllable labor populations and maximize the profits that can be made from exploiting their labor.”

Many of these workers are now unemployed. In New York City, Solis speaks to people on winding pantry lines, urging them to join the campaign and call their representatives. Fermin is expanding Black Trans News to support more Black trans sex workers like Foxx and step in where the government—and the current economic system—has failed.

This blog originally appeared at In These Times on June 30, 2020. Reprinted with permission.

About the Author: Rebecca Chowdhury is a freelance investigative journalist based in New York City. A native New Yorker, her work focusing on underreported communities has appeared in The Appeal, The Indypendent and Human Rights Watch.


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N95 masks pour in from unions, corporations, schools, churches … while the federal government lags

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Donald Trump keeps coming up with excuses for why the federal government is not providing medical professionals with the protection they need as they fight coronavirus. And other groups keep coming up with the N95 masks that are so badly needed. On Thursday, SEIU-UHW, a union representing healthcare workers, announced it had located 39 million N95 masks, which were sitting in a medical supplier’s warehouse in Pennsylvania.

The union made call after call until they found a company that had one of the pieces of equipment that’s so desperately needed. While, it cannot be emphasized enough, Donald Trump makes excuses.

The supplier with the 39 million masks is now selling them to the state of California, several California healthcare providers, and the Greater New York Hospital Association. In California, SEIU-UHW workers will benefit directly by having more of the protective gear they need. But, as the union’s president said in a statement, “While we are pleased with these initial results, we recognize they are stopgap measures in light of the estimated 3.5 billion masks that could be needed during this pandemic. We urgently need the federal government to step in and drive a coordinated national response to the PPE shortage.”

SEIU-UHW wasn’t the only organization stepping up to find masks. Building trades unions previously donated masks their workers use to protect themselves on the job. In Washington, D.C., the head stonemason at the National Cathedral remembered a stash of thousands of masks, which the cathedral donated. Goldman Sachs is the latest company to donate hundreds of thousands of masks out of its own disaster preparedness supply. And more local organizations are scraping together every last mask and other protective gear they can and sending them to their local hospitals—like Smith Vocational and Agricultural High School in Northampton, Massachusetts, which donated 215 masks along with safety glasses and other protective equipment.

Across the country and from the most massive corporations to small organizations, people are working to equip our medical professionals to stay safe and treat us when we get sick. And with the resources of the federal government at his disposal, Donald Trump just keeps failing to deliver that kind of care for public health and safety.

This article was originally published at Daily Kos on March 26, 2020. Reprinted with permission.

About the Author: Laura Clawson is a Daily Kos contributor at Daily Kos editor since December 2006. Full-time staff since 2011, currently assistant managing editor.


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