Budget Toll From Virus Hits Both Democratic, GOP-Led States

Just this past week, five GOP governors made a joint statement calling for Congress to pass a relief package to help their states deal with the fallout from the fast-spreading pandemic

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No “blue state bailout" is a rallying cry for many congressional Republicans as attempts to provide more federal aid to a nation stricken by an ever-worsening coronavirus pandemic remain stuck in neutral.

Yet it's not just Democratic states asking for help amid plunging tax revenue, rising joblessness and a stuttering economy. Plenty of Republican-led states are feeling the pain, too.

Just this past week, five GOP governors made a joint statement calling for Congress to pass a relief package to help their states deal with the fallout from the fast-spreading pandemic.

"The people in our states continue to pay a high price for Congress’ inaction,” said the statement from the Republican governors of Arkansas, Maryland, Massachusetts, New Hampshire and Vermont. “There is no more room for partisan positioning and political gamesmanship.”

Alaska, Florida and Texas are among other Republican-led states where tax revenue has taken a hit.

Sending tens of billions in unrestricted aid to state and local governments has been a key sticking point for congressional Republicans, including Senate Majority Leader Mitch McConnell. The Democratic-controlled House passed a relief bill late last spring that included about $900 billion in direct aid to governments. One of the latest compromise proposals has that amount down to $160 billion, but even that appears too much for many Republican lawmakers.

“Under no circumstance should American taxpayers be responsible for the excesses of wasteful states like New York and California,” said Republican Sen. Rick Scott of Florida.

While New York had a $6 billion budget deficit before the pandemic hit, in large part because of rising Medicaid costs, California's economy was roaring. The state had record tax revenue and had built up $21 billion in reserves.

Scott noted that state and local government revenue is stronger now than it was projected to be in the spring, when swaths of the economy and stock markets were in freefall. That’s largely because federal stimulus measures earlier in the spring boosted the economy, which in turn kept taxes flowing, said Shelby Kerns, executive director on the National Association of State Budget Officers.

She said the coronavirus outbreak has affected the economy of virtually every state, no matter which party is in control.

“We have not seen it be a red state-blue state problem,” Kerns said.

States have been hit especially hard if they rely on tourism — Republican-led Florida and Democrat-led Hawaii and Nevada among them — or energy. That group includes Alaska, North Dakota and Wyoming, all led by Republican governors and legislatures.

A Moody's Analytics report in September found all of them with above-average revenue loss. Florida's situation is less dire because the state does not tax income, but state officials still expect revenue to be $5.4 billion less over the next year and a half than before the pandemic.

The bipartisan National Governors Association is calling for $500 billion over three years to stabilize government finances. The group says the infusion is needed because deep government cuts that could happen otherwise would make the overall economy worse.

As much as congressional Democrats want money directed to state and local governments, many Republicans are dead set against it. McConnell warned in April against using federal aid "to bail out state pensions by borrowing money from future generations.”

It’s true that some big Democratic states, most notably Illinois and New Jersey, have massive unfunded pension liabilities for public-sector workers. For years, those liabilities have forced leaders to decide between tax increases and program cuts as they try to put more money into the systems.

McConnell’s own state, Kentucky, has the third-worst unfunded pension liability. Republicans have controlled the legislature there for years, and a Republican was in the governor's office until a year ago. A Pew Charitable Trusts report found that as of 2018 — the most recent year for which nationwide data is available — Kentucky’s pension fund had only about 45% of what it needs to meet its obligations, leaving it $28 billion short. Out of the eight other states with pension funding under 60%, only South Carolina is fully under GOP control.

Overall, states are still doing worse financially than they were a year ago, even if their revenue projections are better than what they had anticipated after the virus hit the U.S. Kerns, of the state budget officials' group, said states are facing another uncertain time as extended unemployment benefits, help for small businesses and other federal aid are set to expire by the end of the year, even as COVID-19 cases and deaths skyrocket nationally.

“When we talk about the states that are beating those projections,” Kerns said, “better than Armageddon isn’t necessarily good.”

The Moody’s report from September found that states and cities face a collective shortfall of $450 billion over the next two years if no further federal relief comes through. A National League of Cities survey of members released this month found that cities were reporting, on average, revenues down 21% while spending is up 17%.

Across the country, the shortfalls have meant pay cuts for some government workers, delayed road projects and cancellation of police academy classes. This past week, Hawaii Gov. David Ige announced a plan to furlough 40,000 state workers next year, even though the savings would cover less than one-fourth of the state's $1.4 billion budget gap.

While states such as Idaho and South Carolina have fared relatively well financially through the pandemic, some GOP-controlled states are facing budget problems. In Mississippi, lawmakers this week proposed a budget for the coming fiscal year that would include cuts for universities, community colleges, prisons, mental health and child protection services.

Texas went from projecting a $3 billion surplus in late 2019 to expecting a $4.6 billion shortfall by summer. In Alaska, Gov. Mike Dunleavy is proposing what he calls an extraordinary response to revive Alaska’s economy, including direct payments of about $5,000 to each resident from the state’s oil-wealth fund and an infrastructure plan to create jobs. The state’s economy has been battered by the COVID-19 pandemic, which has depressed demand for oil and led to a steep drop in tourism.

In Kansas, where Republicans control the Legislature, Democratic Gov. Laura Kelly told legislative leaders Friday that the state will have to pay for its own expanded coronavirus testing program at a cost of $120 million for just eight weeks if it doesn’t get more federal aid.

Even if Congress delivers some help to state and local governments, some governors said they will consider it only a down payment.

“It’s like a 90-day Band-Aid,” said Maryland Gov. Larry Hogan, a Republican. "We’re going to have to come back to get the major relief package that we’ve been pushing since April.”

Associated Press writers John Hanna, Audrey McAvoy and Brian Witte contributed to this report.

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