Legislation to fund the Paycheck Protection Program (PPP), or federal relief for small businesses impacted by economy-wide shutdowns, is badly needed. Passed as part of the CARES Act, PPP included $349 billion in funding for loans to small businesses — funding which lasted less than two weeks before it ran out. Congress is finally set to approve another $310 billion in funding for the program, but the intervening week — a result of hard bargaining by Speaker Pelosi and Minority Leader Schumer over things like state and local funding — will cost many small business owners and employees their livelihoods.
In yet another reminder that “bipartisan” does not always mean “good,” governors Larry Hogan (R-MD) and Andrew Cuomo (D-NY) recently requested a staggering $500 billion in additional funding for states to be included in the next coronavirus relief package. In a request that reads more like a ransom demand, the governors alluded to the possibility of having to “confront the prospect of significant reductions to critically important services all across this country.”
This request comes even after Congress appropriated $150 billion in aid to state and local governments in the recent CARES Act. Under the terms of the bill, the $139 billion in funding not set aside for territories or tribal governments will be distributed between states based on relative population, with each state guaranteed to receive at least $1.25 billion. The Families First Act also increased federal funding for Medicaid recipients by more than $50 billion over the next several years.
But the amount that states are requesting now blows those amounts out of the water. For context, total state revenue in the 2019 fiscal year was just under $878 billion. Governors Hogan and Cuomo are requesting that the federal government fork over cash equal to well over half of that. Combined with the aforementioned $189 billion in aid already appropriated, states are asking for Uncle Sam to cover over three quarters of normal revenues.
Undoubtedly, states are going to face budget pressures as a result of this crisis. The combination of declining tax revenues and a spike in demand for state-managed aid programs like unemployment insurance would make it hard for states to get by without federal assistance.
Yet requests for a windfall of this magnitude seem to defy reason. States are still going to collect revenue — the two largest state revenue sources, sales tax and income tax revenue, are likely to decrease but not disappear. A majority of the workforce is still working, and Americans continue to make purchases, particularly online.
Imagine the outcry if a business that was affected by the pandemic but still bringing in revenue, such as Walmart, demanded that the federal government give it 75 percent of its revenue — and not through loans, as federal aid to businesses usually takes the form of, but cold, hard cash. Americans would be rightly furious.
Ironically, a common refrain from the left when pandemic-impacted businesses have requested federal loans is that businesses should have built up a better rainy-day fund. And yet states entered fiscal year 2019 with a total of just over $50 billion in their general funds — in over a decade of economic growth, states collectively saved up around 10 percent of the amount they are asking for from the federal government this year.
While governors will of course try to get however big a slice of the pie as they can, Congress should be focused on ensuring that funds are directed where they are most urgently needed. Unfortunately, Speaker Pelosi’s response to the governors’ request on Twitter failed to even question why they needed such an exorbitant sum. It’s possible that states will need further funding, but it should come after small businesses are able to receive loans to stay in business — and it certainly should not be to the tune of $500 billion.
Andrew Wilford is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy research and education at all levels of government.