As Congress considers additional coronavirus relief programs, it needs to provide added flexibility for state and local governments for the package already passed.
As part of the CARES (Coronavirus Aid, Relief and Economic Security) Act, Congress established a $150 billion fund to assist state and local governments combat the pandemic. Each state will receive at least $1.25 billion plus an additional amount based on population. Virginia’s total is $3.3 billion, $1.5 billion of which is for local governments. Unfortunately, the fund provides little actual relief for state budgets but instead all but compels them to devise new spending that can be attributed to COVID-19, by limiting spending to emergency expenses or newly-adopted programs. Federal guidance has confirmed that the legislation prohibits states from using the aid to pay for expenses already budgeted prior to the emergency, doing nothing to replace the losses in tax and fee revenue that have disappeared and cannot be recovered.
Equally the case is the effect on local government: Without additional flexibility and support, municipalities face pressure to impose large increases in property taxes and business taxes at precisely the time those businesses will be struggling to rebuild and rehire their employees.
Congress should address this unintended outcome quickly by providing states and local governments the flexibility to use money from the Coronavirus Relief Fund to 1) offset lost tax and fee revenue that would otherwise have paid for ordinary operating expenses after March 1, or 2) provide one-time tax relief to individuals and businesses to revive the local economy.
Christian N. Braunlich
Thomas Jefferson Institute for Public Policy