Apr 03 2020

New Report Argues that Federal Aid to States, Local Governments is Crucial for Containing Coronavirus, Preventing Economic Disaster

Includes Recommendations for Congress’s Fourth Coronavirus Legislative Response

Washington, D.C. —Today, Congressman Don Beyer (D-VA), the Vice Chair of the U.S. Congress Joint Economic Committee, released a report arguing that federal aid to state and local governments is crucial for containing the coronavirus and preventing economic disaster and should be a major focus of Congress’s fourth legislative response to the public health crisis.

As the report shows, states are being simultaneously strained by skyrocketing spending to combat the coronavirus and large losses in revenue (i.e. sales tax, income tax, tourism). Furthermore, since almost every state is required by law to balance its budget, this may force many to cut spending in areas like education.

Budget cuts at the state level will in turn force budget cuts at the local level, creating a downward spiral that will slow response and recovery nationwide.

“State and local governments are crying out for assistance, and our health and economy depend on Congress helping them,” Beyer said. “If Congress does not respond with aggressive aid, we risk repeating the mistakes of the Great Recession, which lasted years longer for state and local governments because the federal government left them to fend for themselves.”

Beyer continued, “No one should think that this is someone else’s problem. While the fire is hottest in New York right now, it soon will burn from state to state, especially if Congress does not do enough to help state and local governments. As a result, every town in America will be crushed by the coronavirus and our economy will fall a lot further than it has already fallen.”

As the report shows, Medicaid will account for much of states’ increased spending since individuals who lose their jobs (and employer-sponsored health insurance) will need to enroll and many current enrollees will contract the coronavirus and need to be cared for. While the second coronavirus response package includes a 6.2 percentage point increase in the federal government’s share of Medicaid funding (known as the Federal Medical Assistance Percentage or FMAP), the increase was about 3.8 percentage points less than the average increase in the American Recovery and Reinvestment Act. On average, states cover about 40 percent of the cost of Medicaid with the federal government paying the rest.

“One of the most important things Congress’s fourth legislative response must do is increase the federal government’s share of Medicaid funding—the current increase is less than what was given to states during the Great Recession and should be much higher, especially when you consider that the joint federal-state health insurance program is states’ second biggest cost and 10 million people have filed for unemployment over the last two weeks,” Beyer said. “The last thing we want states to do is reduce Medicaid eligibility in the middle of a public health crisis.”

Beyer continued, “Congress’s fourth legislative response must increase aid to state and local governments and allow the Federal Reserve to purchase long-term state and local debt.”

Congressman Beyer is currently serving his third term in the U.S. House of Representatives, representing Northern Virginia suburbs of the nation’s capital. In addition to his role as Vice Chair of the JEC, Beyer serves on the House Committee on Ways and Means and the House Committee on Science, Space and Technology.