Federal funds must go to state and local governments

Over $3 trillion in emergency spending has been authorized by Congress in the past month, with another $6 trillion plus in money creation and lending powers given to the Federal Reserve. Judged solely by its size, this has been an impressive response.

There are two crucial facts to note and questions to ask:

1. Little of these trillions of new dollars has gone to help the people and businesses who need it most. Why?
2. In the discussion of these emergency spending measures, why is there no one asking: How are we going to pay for it? 

The answers to these two questions are pretty much the same: The United States is no longer a republic ruled by the Constitutional mandate to promote the General Welfare. As even former President Jimmy Carter has observed, the USA has become a plutocratic oligarchy, and the federal government has been mutated to protect and promote the wealth, power, and privilege of plutocrats and their retainers.

Ben Mathis-Lilley, Slate’s chief news blogger, argues that even the retainers are beginning to understand: The Coronavirus Is Showing Members of the Professional Class That the Government Doesn’t Work for Them Either.

...government programs in the United States—even those supported by the purportedly pro-government party—are not designed to solve problems. Rather, they are designed to solve a given problem only to a degree—and that degree can’t require an amount of spending that would necessitate financial sacrifice on the part of high-income taxpayers. This is not a leftist conspiracy theory, but the overt position of the party’s leaders, who believe they will not be able to achieve crucial voting margins in upscale suburbs if they authorize too much taxation and spending....

A bewildering array of socio-economic schools of analysis offer explanations for why the USA political system no longer responds to the demands and aspirations of most Americans, from the libertarian argument that there is not enough capitalism, to the marxist argument that the problem is capitalism itself.

We do not have time for an academic debate, however. This is a deadly pandemic that has caused an economic collapse faster and deeper than the collapse of the 1929-1933 Great Depression. The remarkably fast responses by Congress show that the political capacity to act promptly exists. What needs to be done now is to redirect that political capacity away from serving the plutocrats almost exclusively, to actually benefiting the American people, and try to redirect as much as possible of the $3 trillion already passed, and the new $1 trillion package now being discussed, directly into the hands and pockets of the American people and small businesses. [1]

This requires a fast and massive mobilization of political factions that can outweigh and counteract the lobbyists and special interests which serve the plutocrats. There are hundreds of progressive and liberal political action and interest groups, each pursuing their unique agenda, but past experience instructs us it will require too much time and effort to get them out of their silos to cooperate together.

There is one faction that could probably be mobilized quickly to act as a counterweight to the political power of the plutocrats: almost 19,000 state elected officials, and over half a million elected officials of counties, cities, townships, and villages. Plus tens of thousands of appointed officials of the health, human services, finance, budget and other departments of these local governments.

State and local governments are now in critical financial condition

These state and local governments are now in critical financial condition as their revenues collapse while the demand for emergency services leaps.

On April 21, 2020, the seven leading organizations representing state and local governments  [2] called on Congress  to “immediately provide robust, flexible relief” to state, territorial and local governments.  The next day, the National Association of Counties released a statement warning that County budgets may see $144 billion hit from COVID-19

Counties nationwide could see a $144 billion hit to their budgets through the end of 2021 due to the coronavirus pandemic, according to a new report “Running on Fumes: Impact of COVID-19 on County Finances,” released by NACo. 

The estimate includes anticipated increases in expenditures, lost sales tax revenue, lost revenue from charges and fees, lost business license tax revenue and lost income tax revenue. The estimate does not include potential lost revenue from property taxes or from state sales or income taxes that are shared with counties. An additional $54 billion in property tax revenue is at risk in states where counties have not yet collected any or all property tax revenue. 

Meanwhile, county budgets are being stretched to the limit, fielding 911 calls, overseeing emergency operation centers and administering human service programs for millions of newly unemployed residents.  

Even before the novel coronavirus pandemic began, counties invested in community health services and hospitals – nearly $100 billion each year. Now, county budgets are being stretched thin as they work with nearly 1,000 county-supported hospitals and 1,900 local public health authorities to fight the virus.   

Preliminary estimates from NACo show counties could expect a nearly $30 billion increase in expenditures, should the pandemic last through FY2021.

In an April 23 statement, the US Conference of Mayors warned,

Cities are on the front lines of the fight against COVID-19, and this response is forcing our budgets to the breaking point. Across the country, mayors are facing significant budget shortfalls as a direct result of this pandemic, and it is forcing them to make painful decisions. Already, thousands of local employees have had to be furloughed or laid off and public health is being put at greater risk each day.

The National Association of Counties estimates that 76 of the most populated counties could spend up to half of their budgets fighting the coronavirus. Many counties have also begin to furlough or lay off employees. Nationally, the Association estimates counties have laid off about 6 percent of their workforce, but some counties are suffering much deeper cuts. Franklin County, Pa. has furloughed 25 percent of its workforce or 2,000 of about 8,000 employees. This is a completely unnecessary addition to the 30 million Americans who have already lost their jobs, and could have been easily avoided if Congress had given priority to saving state and local governments over saving banks and large corporations.

The National Association of Counties also noted that

Small, rural counties are known for having especially tight budgets, so the COVID-19 pandemic is hitting their finances particularly hard. • Roscommon County (Mich.), a county of less than 24,000 residents with a budget of just over $28 million, estimated that it will incur an additional $335,000 of expenditures each month for closure costs, extra equipment and overtime. These costs translate to a loss of over 14 percent of the county’s monthly budget and take away funding from other crucial county services.ix • Humboldt County, Nev., home to 17,079 residents, is projecting $468,000/month in new costs that include support to their county hospital, county emergency response, increased inmate medical, emergency day care for essential employees, additional supplies, IT costs for telework and staff costs. The estimate also includes monthly lost revenue of $118,000

Tony Romm of the Washington Post reported in April 29, Mass layoffs begin in cities and states amid coronavirus fallout, threatening education, sanitation, health and safety, and placed the blame squarely on the Republican Senate leadership.

In Michigan, some unstaffed highway rest stops are shuttered. In Santa Barbara, California, local librarians are out of a job. Dayton, Ohio, has ordered furloughs at nearly every agency, and in Arlington, Texas, police officers and firefighters may soon see painful cuts.... In Dayton, for example, Democratic Mayor Nan Whaley said the city has already furloughed 470 of its 1,900 employees, about a 25 percent reduction in staff that has affected public services including the city’s water department. Whaley said officials may have to institute an additional 18 percent across-the-board reduction in the next fiscal year if they don’t see federal support soon....  Michigan this month laid off 2,900 municipal employees, a giant, early cut that reflects the dangers of its looming $7 billion shortfall....  [there are] more than 19 million municipal employees in the United States, or about one-tenth of the country’s workforce, according to federal data from March....

Among municipalities, the new budget cuts could be profound: Between 300,000 and 1 million public-sector workers could soon be out of a job or sent home without pay, according to a new estimate from the National League of Cities. The steep reductions in staffing levels could affect education, sanitation, safety and health, local leaders warn, potentially leaving critical public services in utter disarray.

For governors, mayors and other top local officials, their economic troubles stem from the precipitous drops in revenue that have come as a result of shuttered businesses and sharp decreases in shopping and travel.... 

But their public quest for federal cash has been met with staunch political resistance from Republicans, including Senate Majority Leader Mitch McConnell (R-KY), who at one point suggested states should have the option of falling into bankruptcy. Top Trump administration officials have echoed that skepticism and signaled that any aid would come with conditions... Other Republicans led by Sen. Rick Scott (R-FL) similarly have mobilized in opposition to open-ended aid to struggling city and state governments, breaking with local officials even in the states they represent. “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,” Scott wrote in a draft letter to the president, which he has circulated among his colleagues for signatures. His office confirmed the letter, which attacks New York and Illinois for their financial decisions.

Local governments should be on a hiring and spending spree right now

Moreover, with the surge in demand for emergency assistance and services, counties, cities and other local governments should now be massively boosting the number of employees. Hiring tens of thousands more police, medical responders, and care providers is the only way to prevent more horror stories like the dozens of decomposing bodies found stored in unrefrigerated trucks outside a funeral home in Brooklyn, New York. Try to imagine what other situations will arise if state and local governments are forced to lay off more employees.

Despite this urgent need, Republicans in the Senate, led by Mitch McConnell (Confed.-Ky.) have refused to provide federal assistance. McConnell even said that state governments should declare bankruptcy. This is not just callous ghoulishness from McConnell: Republican policy for over a decade has been to undercut the principle of federalism and force state governments to declare bankruptcy, rather than default as sovereign states. A default would allow a state to decide the priorities of its financial obligations. In bankruptcy, a state surrenders this sovereign power to the legal system, opening the way for conservatives and libertarian Republicans to seize control of the budget priorities of the wealthiest and most productive states -- controlled by Democrats -- where a majority of Americans actually reside. (See Why Mitch McConnell Wants States to Go Bankrupt, David Frum (former speechwriter for George Bush Jr.), April 25, 2020, The Atlantic)

In a Zoom conference call with the mayors of various cities around the country, organized by the U.S. Conference of Mayors, House Ways and Means Committee Chairman Richard E. Neal (D-MA) said that there was a clear majority in the House to pass legislation that would provide "immediate, direct, and flexible federal funding" to state and local governments. A number of mayors asked Neal to rebut the argument that state and local governments have mismanaged their finances. This argument is being repeated by Republicans, including McConnell, who profess anger that local governments have been given too much in pensions and other benefits. The mayors asked Neal to point out their cities are now suffering steep declines in revenue as a direct result of the COVID19 economic collapse.

Despite Neal's comments in favor of direct emergency funding to states and cities, there must be massive pressure placed on House members, and especially Senators, to ensure passage. New York  Representative Alexandria Ocasio-Cortez has been vocal in criticizing the leadership of her own party:

“While recognizing that Democrats managed to secure some wins in the nearly $500 billion legislation—which includes funding for hospitals, small businesses, and testing—Ocasio-Cortez has essentially dismissed it as a Band-Aid for a gunshot wound. ‘We are abdicating our responsibility. We haven’t legislated for a month and thousands of people are dying…. Every time we pass one of these bills, we are hearing that the real solution is coming in the next bill and the next bill and the next bill,’ the freshman congresswoman said in an interview with MSNBC on Tuesday night, hours after the bill passed the Senate. ‘At some point, we have to raise our hands and say, ‘When is the solution coming?’ Because two months of rent are going to pass by before we are actually entertaining a real bill.'”

So, the major political fight of the days and weeks immediately ahead is over whether the sovereign power of the United States government to create and allocate money and credit -- amply demonstrated in the past month of emergency stimulus measures [3] -- will be used to rescue state and local governments, or whether these governments will be forced into painful and murderous austerity.

In normal times, it is the national government that receives the most attention. But as we are discovering in these crises, it is state and local governments that may have the greatest impact on the lives of our fellow citizens and ourselves. Education, fire, police, and emergency medical services are organized not at the national level, but at the county, township, city and town level.

Health care, emergency medical response, community health, law enforcement, food banks, care for the homeless, licensing of small businesses and most other social services are organized and managed at the local level. County, city, town, township, and other local governments are in the most direct proximity to citizens and have long established familiarity and expertise with local conditions, needs, and service and care providers, including local charities and religious establishments. Most citizens will attempt to contact their local governments when seeking assistance. Therefore, the most expeditious and timely response by the federal government in this national emergency is to fund, support, and backstop county, city, town, township, and other local governments.

Most importantly, shelter-in-place and self-isolation cannot be lifted safely until it is known that the pandemic has been contained. The only way to do this, as South Korea and a few other countries have shown, is testing as much of the general population as possible. Quite simply, we can’t let people return to work until we identify and isolate infected people; we can’t isolate infected people until we identify them; and we can’t identify them until they are tested.

Counties and cities should implement nationwide testing - and want to

Almost every county and city in the US has a health department that can be tasked with testing all residents in their locality. The problem, of course, is the staggering cost this would impose on county and city budgets. The obvious solution is that Congress provide immediate and massive funding directly to state and local governments. With direct federal funding, local health departments could hire and quickly train tens of thousands of Americans who have lost jobs in the past month. For example, there is an immediate need for contact tracing, and for disinfecting clinics, hospitals, nursing homes, other care facilities, as well as vital public facilities that must stay open but must ensure a safe environment free of the threat of transmitting COVID19.

In Massachusetts, a pioneering program that will deploy almost a thousand people in a  test of contact tracing  that public health experts hope can eventually contain the coronavirus.

Those contact tracers will interview people who have been infected with the coronavirus to determine who around them might also have been exposed.... 

Such a program aimed at bolstering national public health would be unprecedented in the history of the country. But as the economy nosedives into what could be a depression and millions lose their jobs in the space of a few days and weeks, a government-backed effort to get those people back to work does have a precedent, in Depression-era programs like the Works Progress Administration (WPA) and the Civilian Conservation Corps (CCC).
In their brief histories, the WPA and the CCC employed nearly 1 in 10 Americans, giving people a paycheck in the years between Franklin Roosevelt's election and the outset of World War II. In its first year, the WPA accounted for more than 6 percent of the nation's gross domestic product — the equivalent of about $1.3 trillion in today's dollars.... 

"We need an army of contact tracers in every community in the United States to find every contact to warn them to take care of themselves and not to infect others," said Tom Frieden, the former director of the Centers for Disease Control and Prevention who now runs the global health nonprofit Resolve to Save Lives. "Contact tracing is a core public health activity. It's bread and butter of public health."

On April 10, 2020, the Association of State and Territorial Health Officials released a joint statement with the Johns Hopkins Center for Health Security which stated approximately 100,000 contact tracers need to be hired immediately, at an estimated cost of $3.6 billion.

Based on the average pay for a community health worker of $17 an hour, the potential overall need for funding for a cadre of 100,000 contact investigators, absent a huge number of unpaid volunteers, would amount to approximately $3.6 billion. This is assuming that all 100,000 workers work full time for 1 year.

On April 19, 2020, MIT Technology Review reported

A group of experts has produced a plan for the US to reopen its economy safely this summer. However, it’s contingent on doing at least 20 million tests every day, scaling up contact tracing, and ensuring those who need to isolate can be properly supported. The report, produced by 45 cross-disciplinary experts assembled by Harvard University’s Edmond J. Safra Center for Ethics, says we need to be testing 5 million a day by early June in order to start reopening the country, increasing to 20 million by mid-summer to fully end the shutdown. From the start, the World Health Organization has said the only way to beat the virus is to “test, test, test.”

On April 29, the mayor of Los Angeles announced plans to test all ten million residents free of charge.

Previously, testing was provided only to residents with symptoms and to essential workers and people in institutional environments such as hospitals and nursing homes. Health experts have said that increased testing is necessary to better understand how many people have the virus, which could then help government officials decide when and how to phase out stay-at-home orders.

On April 16, the National Association of County and City Health Officials released a statement:

Given global experience with contact tracing, as well as staffing needs at local, state, tribal, and territorial health departments across the many disciplines needed for contact tracing, we estimate a surge capacity of at least 100,000 individuals will be needed. This number is a baseline estimate based on a ratio of 30 professionals per every 100,000 Americans and will need to be revisited as we learn more about the virus and develop improved cases count estimates. Therefore, clear, comprehensive wrap-around policies and services must be enacted, including: • Safe housing for quarantine or isolation • Paid time off • Childcare • Behavioral health services to address stress on the individual and family • Access to essentials such as food, medications, laundry, etc. • Transportation and/or access to routine medical care or emergency care • Materials, such as a reliable thermometer, masks and gloves, and internet access.... Local health departments budgets and workforce were hard hit by the 2008 recession, losing nearly 25% of their workforce since that time.

Contrast these action by state and local governments to Trump's April 8 statement that testing large numbers of Americans is "never going to happen." Clearly, the will to lead and act is at the local level, but sorely lacking in the national executive.

Give counties, cities, and towns the funds to save their small businesses

It is local governments that license small businesses, and know the small businesses in their jurisdictions, their locations, the approximate number of employees, and the impact they have on the community. These local licensing authorities are in much closer proximity to small businesses than any agency of the federal government can be. If they are given full federal funding, they can move much more quickly to identify, evaluate, and assist the small businesses in their communities. It is already clear that the CARES Act Payroll Protection Program, intended to give a lifeline to small businesses, is faltering because of the slow, chaotic and sometimes reluctant response by the commercial banks tasked with administering it. It is easy to imagine that the corporate management of a Too Big To Fail bank in New York City or Charlotte would not have much knowledge or even interest in focusing on those small businesses that are most esteemed in a community. This is not a problem if funding is provided directly to the county, city, town, and municipal governments that by their nature care most deeply about their communities. Local officials know what small businesses are in their community and what they contribute to a community's livability, character, and vibrancy. And local governments would not require a profit margin on whatever funds they pass through to small businesses. 

As Nathan Tankus wrote on April 24, 2020, in Why don't we just provide an Emergency Basic Income to Businesses?

“Tax and state regulatory authorities are more equipped at providing the kind of oversight we want- confirming employees of businesses and auditing costs- and are just as capable of initiating payments that the banking system processes. They also already have payroll and banking information of businesses, eliminating problems we’ve had in making direct payments to individuals.”

In Orange County, North Carolina, the Board of Commissioners had acted before the end of March to use what resources they had to save small businesses and the self-employed. Programs such as Orange County's Emergency Small Business Funding Program-COVID-19, and the Orange County Arts Commission’s Arts Support Fund are examples of the capabilities of local governments to accurately and quickly deliver assistance to the individuals and small businesses who really need it. One or two trillion dollars in federal funds passed through to county and city governments nationwide will do much more good in saving our local economies, and with far greater accountability, than any program administered through the commercial banking system in which over one half (52%) of all deposits are controlled by the largest 15 banks in the US, which have now demonstrated their unwillingness to lend to small businesses, even when fully backstopped by the Federal Reserve and US Treasury.

Much if not most of the federal funding can be modeled on the highly successful Community Development Block Grants begun in the 1970s. It should also be noted that there are now an additional 30 million unemployed Americans that need jobs. If many of these can be hired by local governments to assist in responding to the crisis in so many different ways, and local governments can keep alive the businesses that employ them, then we can avoid the national trauma of millions of people having to pull up roots in the search for new employment. They can stay in the communities they have already settled in. But it all depends on sending most, if not all, of the stimulus money to local governments.

Legislation is being written, or already has been written. But we need to make sure the funding is large enough, and flexible enough, that it actually rescues state and local governments from their financial crises.

Political mobilization needed to force Congress

Mobilizing nationally to force Congress to approve full federal funding for state and local governments should be focused on getting the half million state and local elected and appointed officials to contact their Representatives and Senators in coordinated blocks. Senators are likely to just tolerate being contacted by a mayor or county commissioner. Having all the mayors and county commissioners of their state contact them in a few days or weeks, and all demanding the same action on the same legislation, is something else altogether.

To this din and cacophony that shatters the placid idyll of Senators and Congressmen, should be added the voices and demands of state legislators. Many state legislators and county officials probably know personally the staff and policy directors of their Congressmen and Senators. Local and state elected officials offer a uniquely powerful means of applying pressure on Congressmen and Senators.

For community activists, state and local elected officials are usually much more accessible than  Representatives and especially Senators in the Congress. DSA, Our Revolution, Sunrise and other locally based activist groups, as well as national groups such as Greenpeace, Common Cause, the NAACP, People for the American Way, and Sierra Club can more easily gain access to state and local elected officials. Individual citizens who shy away from these groups can also more easily gain access to state and local elected officials.

Every person that wants to help save the small businesses of their community, and wants to be assured that their community is free of the threat of infection, can participate in this mobilization by reaching out to their county commissioners, town councilmen, and other local officials, and asking them to pressure Congressmen and Senators to pass a massive funding program that goes directly to local governments. And there is even more reason that this program should be as large as the CARES Act

This project will also lead activist groups to begin to explore and understand the political power structure of their local communities. This will open up entire new vistas of political opportunity to engage policy makers and perhaps identify candidates that can credibly challenge the national establishment of the two political parties.

In the wake of Sanders withdrawing, countless members of activist groups have expressed a desire to find a new cause to shift focus to. The emergency legislation enacted by Congress thus far has done little to help individuals and communities. There needs to be a groundswell of citizens demanding the next legislative package be devoted to rescuing the states, counties, cities, towns, and villages we live and work in.

There will not be another chance to get this right. Once these independent business people are out of money and out of business, they will be forced to find another livelihood. It will be extremely difficult to convince them to return and start up again. Many if not most will simply not have the funds to do so, no matter how interested they are. Only the federal government has the reach and the resources to ensure that the emergency response of state and local governments does not falter for lack of funding in this emergency.

Economic Policy Institute Letter to Congress 

Economic Policy Institute, Letter to Congress urging $500 billion in relief funds for state, local, territorial, and tribal governments and other transformative investments
Contact EPI and encourage them to push for far more than $500 billion

COVID-19 Emergency Response Group

COVID-19 Emergency Response Group Webpage

COVID-19 Emergency Response Group Facebook page

PRESS RELEASE, 6 April 2020

Notes

[1] $1200 to each adult in USA and $500 for each child comes to only $341 billion, or just 11.3 percent of $3 trillion. Where is the other $2.65 trillion going? 

• US Coronavirus “Bailout” Is a $6 Trillion Scam - Max Blumenthal and Ben Norton With Michael Hudson, Moderate Rebels podcast of April 21
• Coronavirus Drives Barrage of New Lobbying Activity, Wolf Richter, Wolf Street, April 20, 2020  
• The PPP is letting our small restaurants and businesses die, Los Angeles Times, April 18, 2020. Many useful links with details of the inadequacies of the CARES Act and its follow-ons so far.
• The Trickle-Up Bailout: It’s early days, but the Federal Reserve “bazooka” has mostly impacted the 1%, Matt Taibbi, April 17, 2020 
• Resetting the Bomb: Another era of debt-fueled profiteering is ending with a bailout. How we’re institutionalizing the unfairness economy, Matt Taibbi, April 6, 2020 
• Unfortunately, there are no reports that Senators, Congressmen, or their staffers now understand that the $2.4 trillion was mostly wasted on rescuing large corporations, hedge funds, and the already rich. One particularly odious tax measure slipped into the CARES Act by Republicans gives rich Americans a "stimulus" of up to $1.7 Million each.

[2] 

• The National Governors Association
• Council of State Governments
• National Conference of State Legislatures,
• National Association of Counties
• National League of Cities
• U.S. Conference of Mayors
• International City/County Management Association

[3] Stephanie Kelton, As Congress Pushes a $2 Trillion Stimulus Package, the “How Will You Pay For It?” Question Is Tossed in the Trash, The Intercept, March 27 2020. Includes quote from Rep. Ocasio-Cortez:

It’s a fascinating progressive moment because what it’s shown is that all of these issues have never been about ‘how are you going to pay for it?’ It’s never been about whether we have the capacity to do these things or if the logistics have worked out. 

All of these excuses that we have been given as to why we cannot treat people humanely have suddenly gone up in smoke and what has been revealed is that all of these issues were really about a lack of political will and who you deemed worthy to be in an emergency or not.