Platte Institute Calls on Congress to Fix Federal CARES Act

UPDATE 4/30/2020:  The letter for financial flexibility in the CARES Act has now been signed by 29 organizations in 26 states, An updated verison of the letter is now linked below.

The Platte Institute and the North Carolina-based John Locke Foundation are leading a coalition of state policy groups calling on Congress to provide additional financial flexibility for states and local governments in the federal CARES Act relief package.

Platte Institute CEO Jim Vokal and John Locke Foundation CEO Amy Cooke submitted a letter this morning to U.S. House and Senate leadership co-signed by think tank leaders in 16 states. A copy of the letter is available here: CARES Act Coalition Letter

The letter calls for modifications to the $150 billion “Coronavirus Relief Fund” for states and local governments in the federal CARES Act. While each state is allocated at least $1.25 billion from the fund, the requirements of the program won’t currently help states with what may be their largest financial challenge resulting from COVID-19, which is a sudden and sharp reduction in most sources of tax revenue.

The language of the CARES Act specifies that funds may be used for emergency expenses, such as Nebraska’s $83.6 million rainy day fund allocation for its COVID-19 response, or for newly adopted programs. Federal guidance has confirmed that the legislation prohibits states or local governments from using the aid to pay for expenses that were already budgeted prior to the emergency.

In addition, local governments with populations under 500,000 are not currently eligible for aid from the Coronavirus Relief Fund. This means the vast majority of Nebraska’s 503 municipalities would be ineligible for support.

In a Platte Institute Webinar, Nebraska Legislature budget chairman Sen. John Stinner stated that he is anticipating at least a 10% reduction in state general revenue from the Directed Health Measure in place in Nebraska, which has resulted in a rapid spike in unemployment claims.

Without additional flexibility and support at the local level, municipalities that depend heavily on sales tax revenue may face pressure to impose large increases in property taxes due to a reduction in consumer spending.

The changes envisioned by the Platte Institute’s letter would allow money from the CARES Act Coronavirus Relief Fund to be used to:

• Offset lost tax and fee revenue that would otherwise have paid for ordinary operating expenses between March 1 and December 30, 2020, and
• Provide one-time tax relief to individuals and businesses to revive the local economy.

“Under the current version of the CARES Act, the only way for states and local governments to qualify for aid is to find new ways to spend money. But the state’s largest expense will not likely be the emergency effort itself, it will be lost revenue from a shut-down economy,” said Platte Institute Chief Executive Officer, Jim Vokal.

“If there are no changes to the CARES Act, states and local governments may be stuck choosing between harmful tax hikes just after a recession, or losing key sources of funding for essential services. Providing financial flexibility in the CARES Act will give communities across the country the best chance to rise from the COVID-19 Recession,” said Vokal.

Photo by Martin Falbisoner