May 14, 2020 - Politics & Policy

Federal coronavirus relief for cities is still uncertain

Kim Hart, author of Cities

Illustration: Aïda Amer/Axios

House Democrats on Tuesday released a $3 trillion phase 4 coronavirus relief proposal that would provide $500 billion to state governments and $375 to local governments — welcome news to local leaders who've been pushing hard for funds as city coffers run dry.

Where it stands: The fate of the package is uncertain, as it hasn't been negotiated with House Republicans and the Trump administration.

  • The White House is in "wait and see mode," said White House economic adviser Kevin Hassett during a Brookings Institution briefing this week. He argued that some of the biggest expenditures in the House's Heroes Act could be "putting the cart before the horse," per Axios' Dion Rabouin.
  • Sens. Bob Menendez (D-N.J.) and Bill Cassidy (R-La.) are still working on legislation to create a $500 billion fund to help state and city budgets.
  • Some Republicans support aid, but they want to ensure the money actually reaches local governments and is spent on COVID-specific shortfalls rather than to address budget problems that existed before the pandemic.
  • For example, Rep. Tom Reed (R-N.Y.) said this week he’s working on such provisions with Menendez and Cassidy to avoid “budget shenanigans.”

The big picture: Emergency federal aid provided by Congress so far is for expenses directly related to coronavirus response. As of now, funds aren't yet allocated to replace lost revenue, which is what city leaders say they need to avoid large-scale layoffs and cuts to services.

  • The current $150 billion set aside for states and cities is only available for jurisdictions of 500,000 or more residents.
  • The Center on Budget and Policy Priorities increased its forecast of U.S. state budget shortfalls from $500 billion to $650 billion.
  • This month, Moody's lowered its U.S. state sector outlook to "negative" (down from "stable"). The last time Moody's gave the sector a "negative" outlook was in early 2008 due to the financial crisis.
  • 84% of voters favor a $1 trillion federal aid package to states, cities and towns, per a new Hart Research Associates poll on behalf of the American Federation of State, County and Municipal Employees and American Federation of Teachers.

What to watch: Senior living (60%), mass transit (45%) and higher education (43%) are the municipal sectors at highest risk for credit deterioration as a result of the coronavirus, per an April survey of municipal bond analysts by Hilltop Securities.

  • A third of credit analysts think $600 billion of additional relief is needed to have a neutral impact on state and local government credit, per the survey.

Go deeper

Biden formally secures Democratic presidential nomination

Joe Biden speaks at Delaware State University's student cente on June 5. Photo: Jim Watson/AFP via Getty Images

Former Vice President Joe Biden became the formal Democratic presidential nominee on Friday evening, per AP.

The big picture: Biden has been the presumptive frontrunner to take on President Trump since Sen. Bernie Sanders suspended his campaign in early April.

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Illustration: Sarah Grillo/Axios

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  4. Sports: How coronavirus could reshuffle the sports calendar.
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Scoop: German foreign minister to travel to Israel with warning on annexation

Heiko Maas. Photo: Michael Kappeler/picture alliance via Getty Images

German Foreign Minister Heiko Maas is expected to travel to Israel next week to warn that there will be consequences if Israeli leaders move forward with plans to annex parts of the West Bank, Israeli officials and European diplomats tell me.

Why it matters: Israeli and European officials agree that if Israel goes ahead with unilateral annexation, the EU will respond with sanctions.