National groups call for aid for state governments

By: Emily Makings
10:32 am
March 24, 2020

As Congress continues to debate further response to COVID-19, some national groups are calling for aid for state governments.

The National Governors Association (NGA) has asked Congress for $150 billion “in immediate direct aid to the states, with maximum flexibility for governors’ COVID19 efforts.”

NGA also thinks the recently adopted temporary 6.2 percentage point increase to the Federal Medical Assistance Percentages (FMAP) for Medicaid is too low and should be increased to at least 12 percent. (Medicaid costs are split between the federal and state governments, based on the state’s per capita income.) The NGA writes, “Longer term, automatic and more robust increases in FMAP are needed as states and territories rapidly respond to COVID19, including funds for states and territories that expanded Medicaid.”

Similarly, the National Association of State Budget Officers (NASBO) has also requested aid for state governments. According to NASBO, “Budget officers agree that flexibility and quick access to funds are the most important tools to help states mitigate the impacts of the pandemic.”

NASBO requests:

  • A 12 percent increase in the FMAP for Medicaid. NASBO further suggests “a trigger tied to unemployment levels that would maintain an enhanced FMAP would help avoid a fiscal cliff during a lengthy recovery period.”
  • Direct aid to states. An amount is not mentioned in the letter, but a follow-up noted that, like the NGA, NASBO supports an aid total of $150 billion (on top of enhanced FMAP funding). The follow-up also suggests that the direct aid could be provided through a “flexible grant administered through the Department of Treasury.” Such a grant was provided in 2003; those “funds were used to provide essential government services or to cover the costs of complying with a mandate and a state could only use the funds provided for types of expenditures permitted under the most recently approved budget.” But, in the current case, “states would need flexibility to redirect funds to public health and other needs that were not anticipated when budgets were enacted.”
  • State liquidity. NASBO asks the Department of Treasury “to suspend the provisions of the Cash Management Improvement Act of 1990 pertaining to the calculation of state interest liability.” (Under that act, states owe interest to the federal government starting when federal funds are credited to the state’s account until the state pays out the funds.) Additionally, NASBO notes that the federal extension of the tax filing deadline to July 15 means that “most states will see lower tax collections this fiscal year reducing the resources available as they escalate their COVID-19 response.”

Meanwhile, on March 23, the Federal Reserve announced several “measures to support the economy.” These include “facilitating the flow of credit to municipalities” by expanding the Money Market Mutual Fund Liquidity Facility and the Commercial Paper Funding Facility “to include a wider range of securities.”

Route Fifty reports that this  

. . . could help bolster state and local governments’ access to short-term borrowing as the coronavirus crisis pressures their finances.

For some states and localities, short-term debt is an important source of cash for covering expenses at times when tax revenues are not rolling in. But the virus outbreak has been driving turmoil in the municipal bond market, threatening the flow of this type of lending.

Demand for municipal debt has collapsed as the disease outbreak disrupts nearly every corner of the U.S. economy. The pandemic-driven downturn is also stoking worries that state and local tax revenues could take a sizable hit, while at the same time governments spend big to combat the disease.

Categories: Budget , Categories , Economy.