GOP divided over state aid during coronavirus pandemic

Republicans are divided over how to handle aid for state and local governments hit hard by the coronavirus pandemic.

The issue quickly became a flashpoint between Senate Majority Leader Mitch McConnell (R-Ky.) and Democrats, but there are also signs of fractures emerging among GOP lawmakers — posing a challenge for Republicans as they work to solidify their negotiating stance for the next relief bill.

Congress allocated $150 billion for state and municipal governments as part of the $2.2 trillion rescue package signed into law March 27. But Republicans are split on whether to loosen restrictions on how that money and any future funds can be spent, or if they should even support additional funding given GOP concerns about “state bailouts.”

“I think we have to look and hard and see what is working, what is not working,” Sen. John Thune (S.D.), the No. 2 Senate Republican, told Fox News when asked about state aid.

Democrats have promised to make more state and local aid their top priority in the next relief package. Speaker Nancy Pelosi (D-Calif.) estimated that the price tag would be in the neighborhood of $1 trillion — a figure that is already being met with cold water by congressional Republicans.

McConnell has described Republicans as “open” to considering more help for states but signaled it would need to be tied to providing additional liability protections for employers who may soon start trying to reopen their businesses.

“Senate and House Republicans agree these protections will be absolutely essential to future discussions surrounding recovery legislation,” McConnell and House Minority Leader Kevin McCarthy (R-Calif.) said in a joint statement.

But beyond the liability issue, Republicans are sending mixed signals about what they would support.

The National Governors Association — which is led by Maryland Gov. Larry Hogan (R) and New York Gov. Andrew Cuomo (D) — is asking lawmakers for an additional $500 billion that “allows for replacement of lost revenue” and additional flexibility in how they can spend money already appropriated by Congress.

States have been hit hard by the coronavirus, forcing businesses to scale back and many to close altogether, depriving states and local governments of a key tax base.

Kentucky is predicting it could face a $500 million shortfall, Arizona has said it is facing a roughly $1.1 billion budget hole, and Cuomo has warned of a 20 percent cut to schools, hospitals and local governments without more assistance from Washington. Unlike the federal government, every state, with the exception of Vermont, is required to balance its budget.

One of the biggest areas of contention among Republicans is whether to allow states to use federal aid to replace lost revenue as the coronavirus has depleted their tax base.

McConnell indicated last week that while Republicans were interested in helping states “with anything related to the coronavirus,” they were “not interested in revenue replacement.”

“We’re not interested in them solving their pension problems or all these other things that they would like for us to finance,” McConnell added during a Fox News interview.

But there are several GOP senators who have signaled they would support allowing congressional funding to go toward revenue replacement, arguing it relates to COVID-19 because states are losing tax revenue due to disease mitigation efforts.

“What my constituents are asking us for is more flexibility in how the money can be used, and we’re continuing to talk about whether it can be used to offset lost revenue. I mean that’s real,” Sen. John Cornyn (R-Texas) told reporters.

Sen. Susan Collins (R-Maine) told The New York Times that she also thought the restrictions on funding in the $2.2 trillion CARES Act were too restrictive, noting that “sales tax isn’t going to the state, restaurant and lodging tax isn’t going to the state, excise tax on registering your car, your boat, your snowmobile isn’t going to the state.”

Republicans have acknowledged that providing state and local aid, and how that money should be used, has emerged as a topic of contention within their conference. The latest $484 billion coronavirus relief package did not include state or local money after GOP senators warned that including it would prevent swift passage in the Senate.

Sen. Mike Rounds (R-S.D.) said he wanted more flexibility for how states can spend the money “in the first place, but I’m in the minority.”

“I pushed that I thought they should have the flexibility to include some percentage of it for a loss of revenue,” Rounds told South Dakota radio station SDPB. “I continue to have opposition on the part of a large number of individuals who fear that the states might very well use it for inappropriate activity.” 

Trump has previously signaled he was open to including additional help for states in the next coronavirus bill. McConnell said during an interview with radio host Hugh Hewitt that he supported allowing states to declare bankruptcy — something they can’t do currently under the law — though the GOP leader stressed he was just throwing it out as an “option.”

The president initially told reporters last week that he had talked to McConnell and other senators about how to handle help for state and local governments. But he appeared more skeptical Thursday, saying if they provided aid to states they would have to “get something for it.”

“The Democrats have come to us and they’d like” to include it in the next bill, Trump told reporters. “They happen to be Democratic states. The Republican states are doing very well. Maybe the Democrats should have brought this up earlier.”

Five Republican senators sent Trump a letter this week, urging him to oppose any revenue replacement provisions or allowing the money to go to long-standing financial issues like overstretched pension funds.

“We urge you to reject efforts by some states to use federal tax dollars for reasons unrelated to combatting Coronavirus. We believe additional money sent to the states for ‘lost revenue’ or without appropriate safeguards will be used to bail out unfunded pensions, reward decades of state mismanagement, and incentivize states to become more reliant on federal taxpayers,” they wrote.

Sen. Bill Cassidy (R-La.) has introduced legislation with Sen. Bob Menendez (D-N.J.) that would provide an additional $500 billion for states and local governments. Cassidy said in a tweet that under his bill the funds would not go toward “unfunded accrued liability,” an apparent reference to concerns by some of his GOP colleagues that coronavirus money could be sent to shore up pension programs.

He said on Twitter that the measure “will provide support for state & local govts to maintain essential services. We must protect Americans’ financial future & we can’t do that if garbage is piled up on the streets because local govts are broke.”

But Thune said that while a “number” of Republicans were willing to consider providing greater flexibility to the $150 billion already appropriated by Congress, they weren’t yet ready to greenlight more money.

“What many of our members are prepared to do at this point is let’s see what’s working, what’s not working,” he said. “Let’s not borrow another several hundred billion dollars and add to the dollars we’re already putting out there before we see what kind of impact they’ve had.”