COVID-19, the CARES Act, and State and Local Government

Page 1

COVID-19, the CARES Act, and State and Local Government Photo Credit: Wikimedia Commons

by Sevion DaCosta ’21, Tara Mehra ’23, Robin Peterson ’22,

Henry Schulz ’22, and Nathan Tran POM ’23 May 6, 2020

Andrew E. Busch, Faculty Supervisor

The Coronavirus Aid, Relief, and Economic Security (CARES) Act is intended to flood money into the economy and generate enough spending to prevent a full-blown recession caused by the COVID-19 pandemic. It provides emergency assistance to individuals, families, and businesses through the form of cash payments, bolstered unemployment benefits, small business loans, and the suspension of student loan payments and interest. The law appropriates funds for state and local governments as well to be distributed based on population. As heavily discussed in the media, the CARES Act authorizes millions of payments to be sent to individuals and families to help with expenses caused by the coronavirus. The intent of issuing one-time checks is to aid those who are suffering economic loss and unemployment as a result of the pandemic. Expert financial analysts consider the check a “rainy day” fund, and recommend that it be used for essentials such as rent, groceries, and emergency supplies.1 The extra money is meant to allow more people to pay their landlords and contribute to their local economy. Under Section 2201 of the CARES Act, the law breaks down who will be getting a tax credit and what the requirements are. All incomes will be based on the households or individuals’ 2018 tax return, unless they filed their 2019 tax return--in which case it will be based on their most recent filing. Individuals who did not file a tax return in 2018 or 2019, are still eligible to receive stimulus payments. People who get social security retirement, disability (SSDI), survivor benefits, Supplemental Security Income (SSI), recipients of Veterans Affairs benefits, and those who receive Railroad Retirement benefits will get the payment through those programs.2 Finally, people who are eligible, but who do not fit into any of the automatic payment categories, can apply directly to the IRS for payments.3 Individuals will get $1,200 in the form of a tax credit if their tax return shows they make less than a specified amount. If a couple files a joint tax return and makes less than $150,000 per year, the couple will receive

COVID-19 and CARES Act | page 2

$2400. People who file as single and earn less than $75,000 will receive $1,200. Lastly, if an individual files as the head of household and makes less than $112,500, that person will also receive $1,200. Additionally, families will receive $500 for each of their dependents under 18 years old; however, if an individual is over 18 and claimed as a dependent, no payments will be made on that individual’s account. Individuals who earn more than $99,000 and couples who earn more than $198,000 will not be receiving a check.4 Individuals tax return income < $75,000 = $1,200 Joint tax return income < $150,000 = $2,400 Head of Household tax return income < $112,500 = $1,200 Dependents under 18 = $500 each Small businesses will be eligible to apply for small business loans to cover expenses like employee retention and rent due to COVID-19. In section 1112, $17,000,000,000 is allocated for business loans to help buffer the loss of business and continued expenses. An employer is eligible if first quarter gross receipts are fifty percent less in 2020 than 2019, or if second quarter gross receipts are less than 80 percent of the previous year’s. Eligible employers qualify for a tax credit against applicable employment taxes that equal 50 percent of qualified wages to each of their employees for the calendar year. Wages paid to eligible employees should not be more than $10,000 to any one employee and cannot exceed what the employee would have been paid during the past thirty days.5 Additionally, health care expenses can be included as qualified wages, but are excluded from the gross income of employees. Under the CARES Act, there is an increase in eligibility for small businesses to qualify for federal loans if the business has fewer than 500 employees. Sole proprietors, independent contractors, and self-employed individuals will also be eligible for a covered loan during the coronavirus emergency. The maximum loan amount for a small business will be the sum of the product obtained by multiplying a businesses’ average monthly payments for payroll costs by 2.5.6 Maximum Loan = Average Monthly Payments x 2.5 Allowable uses of the covered loan include: payroll costs, continuation of group health care benefits, employee salary, mortgage payment, rent, utilities, and interest on debt obligations. Approved lenders have the ability to approve small businesses which include small banks and other groups. In order to qualify, borrowers must have been affected by COVID-19 and funds must be used to retain workers and maintain payroll or make mortgage, rent, or utility payments. The CARES Act focuses heavily on supporting the healthcare industry, which is under more pressure than ever from the global pandemic. The law requires a report to be conducted on the U.S. medical product supply chain to analyze U.S. reliance on trade for medical equipment, critical drugs and other medical supplies. In addition, the law also mandates the strategic national stockpile to include Personal Protective Equipment (PPE) and other supplies required for the administration of drugs, vaccines, and diagnostic tests. The Secretary of Health and Human services must also maintain a public, up-to-date list on all device shortages in the U.S. In terms of access to health care for COVID-19 patients, health insurance companies are required to provide coverage with no cost sharing requirements for testing or services given to a patient for COVID-19. Health insurance companies must

COVID-19 and CARES Act | page 3

reimburse providers whether they have a pre-COVID-19 negotiated rate or not. If not, companies will reimburse providers for the equal cash price listed on the provider’s website. Important to note, health insurance companies are required to cover any qualifying coronavirus preventative service without cost sharing including: an item, service, or vaccine that mitigates or prevents COVID-19.7 Higher education institutions will also be eligible to receive emergency aid for coronavirus-related financial trouble. Section 3504 allows institutions to use their allocated funds for a fiscal year to award emergency financial aid grants to assist undergraduate and graduate students for unexpected expenses due to coronavirus.8 Emergency aid grants will not be treated like other financial assistance (cost of institution - expected family contribution = estimated financial assistance).9 For students on work-study grants, institutions may make payments to students for the period of time when the students were unable to fulfill their work-study obligation for all or part of the 2019-2020 academic year. Refunds and federal student loan flexibility ensures institutions will return the amount of grant or loan assistance if the student withdraws during the period of enrollment because of COVID-19. If a student withdraws because of coronavirus, loan obligations will be cancelled during that payment period. The CARES Act also gives higher education institutions the authority to exclude the “quantitative component” of the calculation for any credits. All student loan payments are suspended until September 30, 2020 and no interest will be added during this period.10 State and local governments will receive funds as part of the Coronavirus Relief Fund. Under Title V, the Treasury Secretary must appropriate $150,000,000,000 for state, tribal, and local governments to assist with COVID-19 related costs. Each state will be paid the amount proportionate to the state’s relative population which is the total U.S. population divided by the population of the state. However, states will receive a minimum payment of $1,250,000,000, regardless of population. Local governments severely affected by the coronavirus may request a direct payment from the Treasury Secretary, but the state’s overall payment will be reduced by the amount paid to the local government. State government payments = (state population / U.S. population) - local government payments Local Government Payments = 45% state’s payment x (local population / total state population)

The District of Columbia, U.S. territories, and tribal governments will receive payments as well. Of the $150,000,000,000 set aside for state and local governments, $3,000,000,000 will be appropriated for D.C. and U.S. territories, and $8,000,000,000 will be paid to tribal governments. These funds will be distributed based on population and need which will be determined in consultation with the Treasury Secretary. All data used for population information will be based on the most recent year of data available from the Census Bureau. The funds are intended to cover expenditures incurred due to the COVID-19 national emergency that were not accounted for in the state’s budget for 2020. Payments are only meant to cover costs that were incurred from March 1, 2020 to December 30, 2020. The Inspector General of the Treasury Department will monitor the disbursement and use of funds to state, local, and other governments. Any violation found by the Inspector General will be booked as a debt to the Federal Government and will be deposited into the general fund of the Treasury. Additionally, the package includes $25,000,000,000 in infrastructure grants for states around the country.11

COVID-19 and CARES Act | page 4

Visual Breakdown of the CARES Act Appropriations12:

The Pandemic’s Fiscal Impact on States and Municipalities and the CARES Act Response As a result of COVID-19, all state economies will suffer because they will both need to pour funding into COVID-19 relief efforts despite lacking adequate emergency funds and also lose tax revenue. States have various tax regimes, resulting in intricate differences in how COVID-19 will affect each state. All state economies will be impacted by loss of revenue from tourism and foregone tax revenue. Cancellation of major league sports, concerts, and conventions result in a burden on state businesses, costing them millions. Because a majority of these organizations are dedicated to paying their employees, the cost to the organizations is greater than the foregone revenue alone. The loss in local amusement taxes is an example of how there is a lot of money being lost that simply cannot be recovered. Because agency budgets and employment contracts from Fiscal Year 2020 are still in force, it is unlikely that any drastic changes in state and municipal spending will occur until Fiscal Year 2021, which begins on July 1.13 To their credit, thanks to the past several years of tremendous nationwide economic growth, public emergen-

COVID-19 and CARES Act | page 5

cy savings were at record highs, with states having a total of approximately $70 billion in their rainy day funds prior to the pandemic. Unfortunately, for many states, these savings are not nearly enough to blunt the shock of the coming recession: Pennsylvania’s reserves cover only 1 percent of its budget, while the Volcker Alliance estimated that Illinois’s would not be able to cover more than “a few minutes of budget spending.”14 Even California Governor Gavin Newsom, whose state had at least $20 billion in reserves before the pandemic hit, reported that this rainy day fund will be depleted within the next three years unless there is “significant economic stimulus and support from the federal government.”15 Accordingly, in the weeks until July 1, city, county, and state governments will be struggling to reconfigure the next year’s budgets amid extremely uncertain circumstances. This process will surely be complicated by three enormous problems. For starters, the global economy as a whole has been extremely unstable. Starting at the end of February and continuing across March and April, the stock market has been in a state of near-continuous decline, wrecking consumer confidence, activity, and in effect, sales tax revenue for municipalities. Due to concerns that this drop will destabilize the typically stable municipal bond market, the Federal Reserve has prepared to purchase up to $500 billion worth of bonds from several of the nation’s largest states and cities in case the market grows too volatile.16 In addition to affecting sales tax revenues, such intense declines in stock values will disproportionately impact California, New York, and other states that take in significant revenue from taxing wealthy residents’ capital gains. Moreover, social-distancing rules have led to the cancellation of conventions, meetings, and vacations, thus devastating tourism-reliant cities like Chicago. These rules have also reduced demand for oil, leading to a price war among the American, Russian, and Saudi fuel producers. Oklahoma, Texas, and Alaska, among other states, are expecting to lose hundreds of millions of dollars solely from this collapse.17 Perhaps worst of all, with unemployment rapidly rising due to the closure of non-essential businesses, states and municipalities across the United States are taking in much less income tax revenue while paying out much more unemployment insurance.18 Even as tax revenues drop, state and local governments will need to boost certain expenditures in order to combat the intensifying pandemic. Specific provisions of the CARES Act will have a major impact on state and local government. While the CARES Act will allocate funds to stimulate the economy that takes some burden off of states and local governments, the provisions aim for the short-term future, incentivizing state and local governments to adopt policies that will both invigorate their intrastate economy and protect their residents. The CARES Act grants at least $150 billion of discretionary funds to state and local governments, with Senator Patrick Leahy successfully negotiating a provision guaranteeing that each state receives at least $1.25 billion regardless of its population or number of confirmed cases.19 Funding will be given to states on a proportional basis and local governments that have a population of over 500,000 will get 45% of the state’s funding. California is estimated to receive the greatest funding, $15.3 billion, and Wyoming is expected to receive the smallest amount, $1.25 billion.20 Also, $3 billion in funding will be allocated to the District of Columbia, Puerto Rico, and Guam, the U.S. Virgin Islands, the Northern Mariana Islands, and the American Samoa, and $8 billion in funding will be allocated to tribal governments.21 This funding is part of the Coronavirus Relief Fund, and is intended to aid state efforts to fight the virus. The Treasury Secretary will closely monitor these funds to ensure that they are spent solely on virus mitigation efforts, rather than on building infrastructure, keeping employees on payroll, maintaining public schools, honoring pension obligations, and other necessary yet non-virus-related expenses.

COVID-19 and CARES Act | page 6

Other portions of the stimulus package will go towards specifically outlined investments, such as $260 billion to help states pay for unemployment insurance, $30 billion to help school districts and institutions of higher learning switch to distance learning, and $45 billion to boost local disaster relief budgets.22 In short, while the CARES Act will definitely help states and municipalities fight against the coronavirus in the short term, these governments will have to stabilize their much-weakened long-term budgets on their own unless more flexible federal support (such as the sweeping stimulus investments outlined in the American Recovery and Reinvestment Act of 2009) arrives. While this state-by-state funding is a short-term response, state spending thus far suggests that the allotted amounts will offer a significant and important financial resource in the coming months. First, the federal aid gives states a temporary break from drawing money from their reserves. This is important because it helps save this money for future need, and because, as noted above, some states had inadequate funds in their reserve to respond to COVID-19. Further, state spending thus far gives insight into how long the federal aid will last. As of April 7, Washington State had distributed approximately $120 million of the $200 million that was budgeted from its reserve in March.23 As of April 10, New York had spent more than $687 million in responding to COVID-19.24 Coming from two of the states most affected by COVID-19, these distribution estimates suggest that the federal aid will save states a couple months from dipping into their reserve. In addition, the CARES Act allocates $25 billion to the Federal Transit Administration to be given in Transit Infrastructure Grants. $22.7 billion will be apportioned to urban areas, while $2.2 billion These grants will be given to recipients of urbanized area and rural area formula funds, which were predetermined. The funds will support capital and operating expenses relating to the emergency, and may be used to pay for administrative leave for employees that became necessary due to COVID-19.25 This provision will help maintain normality within states. First, this funding will support workers on leave, shifting the burden away from transportation entities, states, and municipalities. Second, the funding can in part be used to purchase protective equipment that will make use of transportation safer and thus more attractive for use.26 The CARES Act dedicates $260 dollars to extending unemployment benefits in response to the rampant unemployment caused by COVID-19. The federal response strongly incentivizes state governments to adopt policies that aid the unemployed. For example, this provision of the bill articulates that states will be reimbursed by the federal government for unemployment benefits paid to the state unemployment fund through the end of the calendar year. The CARES Act also incentivizes state governments to adopt policies that will help contain the spread of the virus by supporting short-time compensation programs. Such programs offer a pro-rated employment benefit. Not only does the federal government offer grants to aid states for the administration of shorttime compensation programs, where employers reduce hours rather than laying off workers, but it appropriates funds towards reimbursement for what is paid for short-time compensation.27 These provisions are examples of how federal funding encourages states to adopt policies that will help those who have suffered economic effects of COVID-19 despite a financial shortfall, like the short-time compensation program. Further, promises of reimbursement for contributions to the unemployment fund allow state organizations to essentially double the unemployment benefits that they would give out otherwise. In the short-term, these provisions allow the state governments to make essential policy decisions without completely compromising their reserve and economy. While the shock of the Great Recession gave state and local governments some experience with adjusting to immense fiscal pressures, this current crisis poses even more of a challenge because of its sheer unpredictabil-

COVID-19 and CARES Act | page 7

ity. On the one hand, as of April 11, all but five states have issued stay-at-home orders; even in those five states, numerous cities are enforcing their own social-distancing guidelines.28 On the other hand, President Donald Trump has repeatedly emphasized that he intends to reopen non-essential businesses and return the economy to its normal level of activity as soon as it safe to do so. At one point, he indicated that he would do so on April 12 in recognition of Easter Sunday until calling off that attempt. The current social distancing guidelines announced by the White House Task Force expire on May 1, 2020.29 However, on April 16, 2020, President Trump announced his “Opening Up America Again” plan, staged in three phases.30 This guideline provides governors the flexibility determine when to open their states. Although some governors have commenced opening their states, other governors have announced their intentions to coordinate with neighbor states to open on a regional basis. California will move forward in conjunction with Oregon and Washington; while governors from New York, New Jersey, Connecticut, Delaware, and Rhode Island will form a joint task force.31 Until there is a clearer and more consistent timeline about the nation’s current state of emergency, no one can reliably predict for how long the economy will remain in its currently constrained state. Even if this conflict between federal and state policies is resolved, experts worry that because coronavirus survivors’ immune systems take a long time to fully recover, the disease could return as soon as social and economic activity normalizes.32 As such, state and local governments can only rely on rough forecasts about the crisis’s duration and, by extension, even rougher forecasts about how much money they will need to spend in the meantime. The most optimistic of these predicted scenarios, which assumes that the economy would reopen and recover around June 2020, would still result in states and municipalities having revenue shortfalls totaling to at least $100 billion.33 To put this into perspective, it took two years for the Great Recession to cause that degree of budgetary damage, and state and local governments are now predicted to experience it within two months or less.34 With this in mind, the two top officials of the National Governors Association, Maryland Governor Larry Hogan and New York Governor Andrew Cuomo, have both called on Congress to send $500 billion in aid directly to states to compensate for the impending revenue shortfalls.35On April 22, 2020, Congress passed a fourth COVID relief package to provide additional help to small businesses, hospitals, and for testing.36 That package includes $310 billion for additional Paycheck Protection Program loans, $60 billion for small lenders and community banks, and $10 billion for Economic Injury Disaster Loan grants. Hospitals and health care providers get an additional $75 billion to reimburse them for coronavirus-related expenses. After the Great Recession ended in 2009, it took states another eight years to return to their previous levels of tax revenue.37 Even after this recovery, the effects of these revenue losses still persist: for instance, even prior to the pandemic, states and municipalities had far fewer employees per capita than they did in 2008 primarily because of the recession’s lasting effects but also likely reflecting market shifts to increased automation and/ or worker efficiency.38 Considering the financial havoc, emergency expenditures, and complete unpredictability caused by this pandemic, state and municipal leaders will now have to brace for tighter budgets in the short term, while uncertainty remains about whether they will enjoy a “V-shaped” recovery or an even harder recovery than before in the long term. Comparison of the CARES Act with the 2009 ARRA The coronavirus pandemic represents the second time in a little more than a decade that the American economy has faced the prospect of a severe downturn, and the second time fiscal and monetary policy has been mobilized against the danger. It is worthwhile to compare the two main fiscal stimulus packages that resulted.

COVID-19 and CARES Act | page 8

In response to the recession of 2007-2009 and the financial crisis that was intertwined with it, Congress initially passed a stimulus package in early 2008 and the Troubled Assets Relief Program (TARP) in late 2008. On February 17th, 2009 President Obama signed the American Recovery and Reinvestment Act (ARRA) into law. This stimulus package was created to fund a vast array of initiatives and orchestrate tax cuts to provide economic stimulus. The act’s purposes included “To preserve and create jobs and promote economic recovery” and “To stabilize State and local government budgets, in order to minimize and avoid reductions in essential services and counterproductive state and local tax increases.”39 In pursuit of the latter objective, the ARRA focused on intergovernmental transfers to state and local governments, with the greatest portion of that funding coming in the form of increased Medicaid spending.40 The main objective of the ARRA was to provide countercyclical fiscal support for the economy.41 Roughly $143 billion was provided to states and local governments. In total, the ARRA was budgeted at around $787 billion, with most expected to be spent within two or three years. The spending, however, extended from 2009-2019, and a total of roughly $821 billion was spent from the ARRA package.42 For the ARRA the largest spending came in the form of temporary authority for assistance to states through increases in the federal matching rate for Medicaid spending, education-related expenses, payments in the form of refundable tax credits, funding for unemployment compensation, and increased funding for transportation and other infrastructure projects.43 Although in 2010 the spending for ARRA began to decrease and more so in 2011 as there was a decrease in the law’s assistance to states, through the same Medicaid programs, unemployment compensation, and refundable tax credits.44 The state fiscal relief was a key aspect of the ARRA. This aid was supplied in 2009 with roughly $38.4 billion going toward the states, with $28.1 billion allocated to an increase in federal spending for Medicaid.45 This support further increased the federal component of Medicaid spending in states that had experienced especially large increases in unemployment and it helped to prevent large tax increases and cuts to government social programs and services that otherwise would have taken place.46 These countercyclical intergovernmental transfers have been found by some analysts to be a quick and cost effective way of alleviating negative effects of economic downturns.47 Table 1 shows the difference between estimated spending on the ARRA compared to actual spending. Congress moved relatively quickly passing the CARES bill to authorize the $2.3 trillion in economic aid. It took roughly a month to put this measure into law, a vast improvement on the ARRA which was not passed until five months after the dramatic worsening of the financial crisis.48 The expenditure for CARES is larger than the $787 billion ARRA stimulus in 2009. Aside from inflation, the biggest reason for the difference between these two bills is the set of circumstances surrounding the bills. In 2008, a near-collapse in the financial sector caused the crisis, while the current 2020 crisis has been caused by a health pandemic that has affected the global community. In addition, CARES, although it is also aimed to achieve an improved economy, has allocated a greater proportion of the spending to go directly to individual citizens. Nonetheless, a decrease in personal consumption spending that occured in the fourth quarter of 200849 looks modest compared to the decrease that could result from social distancing regulations. This decrease in spending will ultimately reduce state tax revenues, which decreased by more than $120 billion during the 2008-09 recession.50 Similar to 2008, the increase in unemployment will require greater spending for unemployment benefits and increase the number of people eligible for Medicaid, which heavily impacts state budgets. Roughly 17% of the CARES Act is allocated specifically for state and local government, amounting to $339.8 billion.

COVID-19 and CARES Act | page 9

The ARRA, had three main spending categories: taxes (cut by $288 billion), unemployment benefits, education, health care (increased spending by $224 billion), and federal contracts, grants and loans (increased spending by $275 billion).51 The CARES Act, the $8.3 billion in public health support signed into law on March 6, 2020, and the Families First Coronavirus Response Act signed into law on March 18, 2020 (approximately $112 billion) total to about 11% of nominal GDP.52 In comparison, the ARRA of 2009, the Economic Stimulus Act of 2008, and TARP amounted to roughly 10% of the GDP at that time.53 Although the exact expenditures are different, the percentage of GDP allotted to each is comparable. Table 1. ARRA Estimated Spending vs Actual Spending from 2009-201154 Department/Agency Agriculture Commerce Defense - Military Programs Health and Human Services* Interior Justice Labor State Treasury* Social Security Administration Education Environmental Protection Agency Transportation General Services Administration Homeland Security Housing and Urban Development All Other TOTAL

Estimated 2009-2011 20.0 4.5 6.3 116.4 2.4 2.6 43.7 0.4 91.9 14.2 18.9 4.3 31.5 2.6 2.0 8.3 10.2 473.5

Actual 2009-2011 31.3 3.3 5.3 107.4 2.6 2.9 66.7 0.4 91.1 13.8 19.4 6.4 31.9 3.1 1.3 11.0 9.0 494.0

Difference: Actual minus Estimate 11.3 -1.2 -1.0 -9.0 0.2 0.3 23.0 -0.1 -0.8 -0.4 0.5 2.1 0.5 0.5 -0.7 2.7 -1.1 20.4

During the Great Recession, the federal government attempted to increase spending by providing grants to states through the ARRA. As previously noted, spending for Medicaid, unemployment insurance, education, and infrastructure by the federal government all increased during this time. The CARES Act similarly earmarks $150 billion in grants towards state and local governments to aid with health care costs and unemployment insurance.55 Combining these grants with the Families First Coronavirus Response Act, the federal share of Medicaid has temporarily increased by 6.2% for states that provide free COVID-19 testing and diagnosis for eligible people, and that do not increase Medicaid premiums or remove people from their Medicaid programs due to failure to pay pre-

COVID-19 and CARES Act | page 10

miums during the COVID-19 crisis. 56 This percentage increase is less than what was seen in 2008-09, but would amount to roughly $35 billion if it continued for the remainder of the year.57 Overall, the CARES Act falls short of spending for state and local government when compared to the ARRA. In total CARES only spends around fifty percent of what was spent by the ARRA package, without giving extra consideration to the large public health costs that states have had to undergo during the COVID-19 pandemic that was not prevalent in 2009.58 In addition, Congress created the provision that the $150 billion can only be used to cover costs related to coronavirus if they are not already covered in the state or local government’s budget.59 Without being able to use this specific funding towards revenue shortfalls, due to lack of tax revenue, or Medicaid and unemployment insurance the cost to uplift states could be higher than $100 billion if the pandemic and its effects continue until the end of the year.60 Without knowledge of when social distancing guidelines can be lifted, the federal government will be tasked with funding state and local governments to ensure consumer spending can still increase. One of the important components present in CARES and not ARRA is the one time $1200 stimulus check that provided to individuals who qualify. Although this assistance will be beneficial to many, the positive effect will differ for each individual depending on geographical location and economic responsibilities. Figure 1. Median Monthly Rent in US Cities

Figure 1 demonstrates the varying cost of living in different cities and acknowledges that for cities like San Francisco, the CARES Act issued check would not satisfy a month of median rent.61 Further, in many cities, a majority of residents rent rather than buy. For states like Washington that have issued a moratorium on evictions, the burden of economic loss is shifted to the landlords.62 Their economic losses will affect themselves, their local economy, and their business.

COVID-19 and CARES Act | page 11

Some Democratic senators and representatives, such as Senator Bernie Sanders and Representative Alexandria Ocassio-Cortez, advocated for stimulus checks to be issued monthly. However, Republican leadership emphasized that issuing checks was a one-time necessity. Thus, after April, the political pressure will increase on state and local governments to provide relief that ensures their residents can pay rent and procure essential items. The one-time checks does not shift the longer-term burden off of states. Moreover, the CARES distribution makes no distinction between people who have lost their jobs and those who have maintained their income. And until social distancing rules are relaxed, people will be unable to spend money on the businesses that are in most dire straits.

CARES Act on Frontline States California and New York: Different Coasts, Different Stories New York has the most COVID-19 cases in the country and California has the 5th most.63 As of May 5, 2020 6:50 PDT, New York has a total of 326,659 cases (1,679 per 100,000 people) and 25,028 deaths (129 per 100,000 people).64 California has 58,652 total cases (148 per 100,000 people) and 2,386 deaths (6 per 100,000 people).65 The Golden State is considered a leader in fighting COVID-19 because it was the first state to order all residents to stay at home on March 19th.66 New York implemented a state-wide shelter in place order on March 22, 2020. 67 Critics say that New York’s slow response is the main reason that the state now has the most cases, not only in America but in the world.68 Additionally, Mayor Bill de Blasio resisted calls to close the city’s public school system and even encouraged New Yorkers – via Twitter – to engage in normal activities in the first week of March. The following is a breakdown of how the CARES Act has impacted these two states that are at the center of the crisis. New York: East Coast Epicenter New York received about $7.5 billion in relief funds from the CARES Act69 for express bridge loans, economic injury disaster loans, emergency advances, and private sector loans from companies such as Facebook, JPMorgan Chase, and Amazon.70 The CARES Act provides work relief benefits through July 31, 2020 and established a provision called the Pandemic Unemployment Assistance (PUA) that gives $600 per week to contractors and other members of the gig economy.71 The New York congressional delegation, however, objected to how the initial $30 billion of the $100 billion Public Health and Social Services Emergency Fund in the CARES Act was allocated. Specifically, the distribution of the first $30 billion is based only on a provider’s proportionate share of Medicare fee-for-service payments nationally and does not account for the intensity of COVID-19 cases in a provider’s area.72 This negatively affects New York hospitals dealing with the most cases. A new relief package offered by Senate Democrats on April 9 would have awarded the state $16 billion in federal aid to fight the virus.73 This bill, however, was blocked as both parties rejected proposed aid packages. Governor Andrew Cuomo expected the CARES Act to bring $6 billion to health care, but the bill’s language outlined only $1.3 billion for the state and excluded one third of New York Medicaid recipients.74 Additionally, New York also has not experienced the most cohesive leadership during the conflict. Specifically, Governor Cuomo and Mayor Bill de Blasio of New York City’s difficult relationship is a function of their differing political ideologies. It has only been exacerbated during COVID-19 as Cuomo and de Blasio argued over the extended closure of the nation’s largest public school system and social distancing measures.75

COVID-19 and CARES Act | page 12

California: Early Responder California received $15.3 billion in relief funds from the CARES Act. California residents who are unemployed due to the crisis will start receiving $600 in extra unemployment benefits starting on Sunday, April 12th as a result of the legislation.76 This additional $600 is supposed to last for the next four months.77 According to some analysts, Governor Gavin Newsom’s early stay at home order has helped limit the spread of the virus. As a result, the state is able to return 500 ventilators to the national stockpile for other states.78 Additionally, the state was in a position to donate the ventilators partly due to hospitals gaining more equipment in the last couple of weeks. Many California health officials believe that the curve is flattening, specifically in San Francisco.79 Some researchers have also concluded that COVID-19 hit California undetected much earlier than originally thought, perhaps as early as December 2019, which would contribute to the appearance of lower infection rates by the time testing began in earnest.80 If that is the case, some of the apparent difference between California and New York may be illusory. Governor Gavin Newsom and his state’s mayors have given consistent public messages on social distancing and the general COVID-19 response. It will remain an ongoing question for public policy researchers to untangle the reasons for the dramatic difference in pandemic outcomes for the two large states which are quite similar politically. How much of the apparent difference was due to proactive public health policy, differences in political leadership, differences in the two states’ public health systems, demographic differences, population density, mass transit use in New York, or even an earlier, undetected wave of coronavirus in California, remains to be determined.

COVID-19 and CARES Act | page 13

Endnotes 1 Ben Popken, “What should you do with your stimulus check? The experts weigh in.,” consumer/what-should-you-do-your-stimulus-check-experts-weigh-n1169526 2 Economic Impact Payments: What you Need to Know,” 3 4 UNITED STATES—116th Cong., 2d Sess., H. R. 748 5 UNITED STATES—116th Cong., 2d Sess., H. R. 748, Sec. 2301 6 UNITED STATES—116th Cong., 2d Sess., H. R. 748, Sec. 1102 7 UNITED STATES—116th Cong., 2d Sess., H. R. 748, Title III 8 UNITED STATES—116th Cong., 2d Sess., H. R. 748, Sec. 3504 9 20 U.S.C. §1087kk, 1998 10 UNITED STATES—116th Cong., 2d Sess., H. R. 748, Sec. 3509 11 UNITED STATES—116th Cong., 2d Sess., H. R. 748, Title V 12 Committee for a Responsible Federal Budget, A Visualization of the CARES Act, 13 Sage Belz and Louise Sheiner, “How will the coronavirus affect state and local government budgets?” Brookings Institution, March 23, 2020, 14 Steven Malanga, “The Crisis’s Impact on Budgets,” City Journal, March 22, 2020, 15 A Martinez, “Gov. Newsom Says ‘Cold, Hard Reality Is California’s Rainy Day Fund Will Be Depleted,” The LAist, April 7, 2020, 16 Alexandra Scaggs, “The Fed Will Buy State and Local Muni Bonds. It Might Not Cover the Virus Shortfall,” Barron’s, April 10, 2020, 17 Malanga, “Impact on Budgets.” 18 Ibid. 19 Caitlin Emma, Jennifer Scholtes, and Theodoric Meyer, “Who got special deals in the stimulus and why they got them,” Politico, March 27, 2020 20 Casey Leins, “Funding by State Under the Coronavirus Stimulus Package,” articles/2020-03-27/what-each-state-will-get-from-the-coronavirus-stimulus-package 21 Mitchell D. Holzrichter, Joseph Seliga, Joanna K. et al., “Summary of CARES Act State and Local Government Relief Provisions,” 22 “COVID-19 Stimulus Bill: What It Means for States,” National Conference of State Legislatures, April 2, 2020, 23 Joseph O’Sullivan, “Washington has already spent 60% of $200 million budgeted to fight coronavirus; 84 million PPEs on order,” 24 Anna Sanders, “NYC has spent more than $687M on coronavirus response: budget office,” coronavirus/ny-coronavirus-spending-response-millions-budget-20200410-zewbm4gb5rbgdl5u4cw7gfkpvi-story.html 25 Coronavirus Aid, Relief, and Economic Security (CARES) Act,

COVID-19 and CARES Act | page 14

26 Mitchell D. Holzrichter, Joseph Seliga, Joanna K. et al., “Summary of CARES Act State and Local Government Relief Provisions,” 27 Ibid. 28 Sarah Mervosh, Denise Lu, and Vanessa Swales, “See Which States and Cities Have Told Residents to Stay at Home,” New York Times, last updated April 7, 2020, 29 John Bacon and Jesse Yomtov, “Coronavirus live updates: Donald Trump announces plan to reopen economy; small biz stimulus fund goes bust; optimism from New York,” 30 White House Guidelines for ‘Opening Up America Again’, 31 Joel Shannon and Lorenzo Reyes, US reopening: What states are relaxing social distancing restrictions and moving away from lockdowns?, 32 Peter Beaumont, Sarah Boseley, and Helen Davidson, “Global coronavirus cases pass 1.5 million amid fears of second wave of outbreaks,” The Guardian, April 9, 2020, 33 Belz and Sheiner, “How will the coronavirus affect state and local government budgets?” up-front/2020/03/23/how-will-the-coronavirus-affect-state-and-local-government-budgets/ 34 Tracy Gordon, “State and Local Budgets and the Great Recession,” The Stanford Center on Poverty and Inequality, July 2012, 35 Kelsey Snell, “Governors Seek $500 Billion in Direct Aid from Congress,” NPR, April 11, 2020, 36 Jeanne Sahadi and Tami Luhby, “What’s in the new small business relief bill,” small-business-relief-package-details/index.html 37 Malanga, “Impact on State Budgets.” 38 Mike Maciag, “A Downsized Public Workforce May Be a Permanent Consequence of the Recession,” December 2017, 39 111th Congress. (2009). American Recovery and Reinvestment Act of 2009. 111th Congress. pkg/PLAW-111publ5/pdf/PLAW-111publ5.pdf. 40 Klein, B., Staal, K. Was the American Recovery and Reinvestment Act an Economic Stimulus?. Int Adv Econ Res 23, 395–404 (2017). 41 The Economic Impact Of, The American Recovery, And Reinvestment Act, Five Years Later https://obamawhitehouse. 42 Congressional Budget Office, “Actual ARRA Spending Over the 2009-2011 Period Quite Close to CBO’s Original Estimate,” 43 Ibid. 44 Ibid. 45 The Obama White House, “The Effects of State Fiscal Relief,” cea/EffectsofStatefiscalrelief/ 46 Ibid. 47 Klein, B., Staal, K. Was the American Recovery and Reinvestment Act an Economic Stimulus?. Int Adv Econ Res 23, 395–404 (2017).

COVID-19 and CARES Act | page 15

48 Leslie Preston, “The CARES Act Provides Material Support to Households and Businesses,” 49 The Economic Impact Of, The American Recovery, And Reinvestment Act, Five Years Later https://obamawhitehouse. 50 Sage Belz & Lousie Sheiner, “How will the coronavirus affect state and local government budgets?”, 51 Kimberly Amadeo, “Obama’s Stimulus Package and How Well It Worked”, 52 Leslie Preston, “The CARES Act Provides Material Support to Households and Businesses,” 53 Ibid. 54 Congressional Budget Office, “Actual ARRA Spending Over the 2009-2011 Period Quite Close to CBO’s Original Estimate,” 55 Sage Belz & Lousie Sheiner, “How will the coronavirus affect state and local government budgets?”, 56 Ibid. 57 Ibid. 58 Ibid. 59 Ibid. 60 Ibid. 61 Data from 62 Joseph O’Sullivan, Daniel Beekman, and Sydney Brownstone, “Inslee orders temporary stop to evictions, other help for workers and businesses in response to coronavirus,” 63 New York Times, “Coronavirus in the U.S.: Latest Map and Case Count,” coronavirus-us-cases.html 64 Ibid. 65 Ibid. 66 Sarah Mervosh, Denise Lu and Vanessa Swales, “See Which States and Cities Have Told Residents to Stay at Home,”https:// 67 Jen Kirby and Emily Stewart, “How New York became the epicenter of America’s coronavirus crisis,” coronavirus-covid19/2020/3/27/21195162/new-york-coronavirus-news-andrew-cuomo-hospitals-population-ventilators 68 Lauren Vella, “Coronavirus watch: New Jersey adds almost 10,000 cases in just three days,” state-watch/492222-coronavirus-watch-new-jersey-adds-almost-10000-cases-in-just-three-days 69 Federal Funds Information for States, “Estimated Allocation of Coronavirus Relief Fund, Documents/statefed/COVID_Relief_Fund.pdf 70 Brian A. Haskel, Alan E. Sherman and Lori M. Waldron, “Timely Economic Relief Information: CARES Act, New York, and New Jersey Specific Information,” 71 Brooklyn Reader, “What Everyone Should Know About The Federal Cares Act,” what-everyone-should-know-about-the-federal-cares-act-listen-up/ 72 Greater New York Hospital Association, “New York Congressional Delegation Questions Allocation Methodology for $30 Billion in COVID-19-Related Funding,”

COVID-19 and CARES Act | page 16

73 Shannon Young, “Cuomo asks Congress to stabilize Covid-19 response,” 74 Ibid. 75 Melissa Russo, “Cuomo vs. De Blasio: Even COVID-19 Pandemic Can’t Bridge Their Rift,” news/politics/cuomo-vs-de-blasio-even-covid-19-pandemic-cant-bridge-their-rift/2372635/ 76 George Avalos, “Coronavirus: $600 in extra jobless benefits start Sunday in California, Gov. Newsom vows,”https://www. 77 Ibid 78 Jeremy B. White,”California sends 500 ventilators back to national stockpile,” story/2020/04/06/california-sends-500-ventilators-back-to-national-stockpile-1272393 79 Ibid 80 Paige St. John, “New signs suggest coronavirus was in California far earlier than anyone knew,” Los Angeles Times, April 11, 2020.

Turn static files into dynamic content formats.

Create a flipbook
Issuu converts static files into: digital portfolios, online yearbooks, online catalogs, digital photo albums and more. Sign up and create your flipbook.