More than six weeks have passed since the House passed the HEROES Act, its latest version of additional stimulus as workers, businesses, and states continue to grapple with the economic consequences of the coronavirus. However, the Senate wants to wait two more before considering a bill of its own.
Both houses of Congress have officially left for a four-week recess on July 4, and Senate Republicans have said consideration of the stimulus legislation will not occur until they return. “Within a month we should be in the final stages of getting that bill,” Senator Roy Blunt (R-MO) told reporters earlier this week. (The House focuses on the committee’s work in the meantime.)
Democrats have argued that this delay could have serious consequences, as states cut budget cuts and households across the country grapple with layoffs and upcoming rent and mortgage payments. Meanwhile, Republicans have noted that some of the previous stimulus funds are still being distributed and emphasize that they are waiting to see how the economy works as some states reopen.
The updates, so far, have been mixed: Last week, a monthly report showed an influx of 4.8 million jobs in June, an apparently promising boost, but the most recently collected data also revealed that more than 1 million new applications for Unemployment came last week. In addition, the current unemployment rate remains one of the highest the country has seen in years, at 11.1 percent. Another complicating factor: Some recent gains are the result of states reopening businesses, a move some have had to reverse as coronavirus cases have skyrocketed.
Economists tell Vox that they are particularly concerned about the limbo states that remain as a result of the Senate stimulus time. While many have rainy day funds, delays in extra support make it difficult for states to plan how well (or not) they will be able to provide public education, higher education payment support, and Medicaid as they continue to drop sharply in income. For many States, their budgets for the fiscal year began on July 1, which has now come and gone.
“States make decisions every day about the services they can provide and where they are going to need to fire people, and if they don’t know for sure if more funds are on the way, they will err on the side of caution,” says the economics professor at the Harvard Kennedy School, Karen Dynan, former chief economist at the Treasury Department. “That cannot be good, especially when we see cases arising in some places and an increased need for good medical care and an aggressive public health policy.”
Democrats legislation would have allocated more than $ 900 billion to states and localities to help cover some of the income deficits they have experienced, in addition to the $ 150 billion that has already been set aside to help address costs. related to the coronavirus in the CARES Law. However, in the past, Republicans have been offended at providing more federal aid to states, and Senate Majority Leader Mitch McConnell dismissed such efforts as a “bailout” that could be used to tackle “pre-existing” problems. . Since then, he said more funds are likely to be needed, but he avoided the amounts Democrats have proposed.
It’s unclear whether Democrats and Republicans will be able to reach an agreement on increasing state funding and next steps in other major programs, including pandemic unemployment insurance, which expires in late July. For now, it’s a question that the Senate won’t address in a few weeks.
State funding and pandemic UI are immediate areas where more action is needed
Additional state funds and an agreement on pandemic unemployment are among the areas where there is an urgent need for more action.
As Vox’s Emily Stewart has reported, state and municipal budgets have faced great strain during the pandemic as they have seen massive declines in sales and sales tax revenue, as well as rising costs associated with coronavirus treatment. Before the coronavirus outbreak, “Arizona was expecting a $ 1 billion surplus and is now reducing a $ 1.1 billion deficit,” he writes.
Some states, including Michigan, have already proposed significant budget cuts for the upcoming fiscal year, including more than $ 450 million in reductions to schools and universities. According to Pew, state and local governments have fired or temporarily suspended 1.5 million workers as of June.
“Assuming this is just a delay and that Congress finally passes a bill, I think the most immediate impact is on state budgets,” says Jesse Rothstein, professor of economics and public policy at UC Berkeley. “States have been kicking the can along the way, waiting for the federal government to act together. … The longer it is delayed, the worse we will all be. “
At this point, it is unclear whether Senate Republicans will be on board with plenty of state funds even after they return to the Capitol: Top leaders, including McConnell, have expressed greater openness to the idea, but have been reluctant to a expansive package. If states don’t get the support they need, quickly, more layoffs and budget cuts could increase the current economic consequences.
“When you cut the budget, you have to cut jobs for workers, and that further compounds the recession we’re having right now,” says University of Kansas professor of economics Donna Ginther. “This is exactly the wrong time for state governments to fend for themselves.”
A July 31 deadline is also approaching for the expanded unemployment insurance that was included in the CARES Act. Scheduled for the end of the month, this policy adds another $ 600 per week to unemployment aid that people receive.
Given the continuing nature of the pandemic and the layoffs that have persisted in many companies, Democrats have argued that this support should continue. As Cecilia Rouse, a former economic adviser to the Obama administration, previously told Vox, ideal pandemic response policies would help put the economy on hold and help workers, as the country solves the health crisis. public.
Republicans, however, have argued that state reopens will provide a key boost and are concerned that extending the UI surge will discourage people from returning to work while companies are rehiring. However, the most recent unemployment report from the Labor Department, which recorded an additional 1.4 million people last week, made it clear that many people are still grappling with job losses.
If expanded UI benefits end in August, this change could have a significant impact on consumer spending and households’ ability to cover the costs of living, including food and rent. “Everything I’ve seen suggests that unemployment is going to be part of the way back, but not entirely,” says Ginther.
Lawmakers have a narrow window to approve stimulus in July and August
Now that he is ready for recess, the Senate will not return until Monday, July 20, when lawmakers will have a narrow window to agree on the next package, before they leave again for their next recess. August 10.
The upcoming UI deadline is among the notable dates pushing Congress to figure something out, both to ensure that people continue to have the support they need and so that states can have time to update their UI distribution approach if it is necessary.
Complicating the problem, as usual, is the White House. “The shape of any type of package is very much up in the air,” White House economic adviser Larry Kudlow said Thursday, noting that the administration opposes pandemic unemployment insurance.
Experts emphasize that more encouragement is needed, especially as coronavirus cases are on the rise again in several states, including Arizona, Texas, and Florida.
“The health crisis, and therefore the economic crisis, shows no signs of slowing down, and now is not the time to reduce support for those who need it most,” says Natasha Sarin, a law professor at the University of Pennsylvania.
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