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The Need for Aid to State and Local Governments Has Not Gone Away

The Need for Aid to State and Local Governments Has Not Gone Away

Thought Leadership Thursday Article

The Need for Aid to State and Local Governments Has Not Gone Away
October 29, 2020
Colleen C. Davis
State Treasurer
Delaware

Dear Colleagues,

As the Delaware State Treasurer, I understand well the impact of denying states and local governments and their citizens an additional stimulus package. Unfortunately, with less than a week until the election, no such support has come.

Delaware, along with most U.S. states, was on course through March to adopt a budget with inflationary growth, wage growth, increased infrastructure investments, and enhancements to schools, public safety, and the environment, but the economic impact of the COVID-19 pandemic changed that direction. Fortunately, Delaware closed FY 2020 with a balanced, albeit flat budget for our new fiscal year, though many agenda items remained unachievable due to the grave impact on revenues.

Delaware experienced a $520 million drop in revenues for its FY21 budget, requiring the State to adopt a flat spending plan. In addition, revenue forecasts for FY22 dropped by $400 million which means budgets will remain stagnant for at least two years during a time when citizens are most in need of a safety net and state economies are most in need of stimulus and infrastructure investments.

Through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Delaware received $927M to help support the recovery of the state’s economy and cover increased costs related to COVID by assuring citizens and businesses we support that money would be available for several crucial relief initiatives.

In August 2019, Delaware’s unemployment rate was 3.9 percent, in August 2020 it stood at 8.9 percent. Those numbers represent 44,468 Delawareans who are out of work, an increase of 134% over last year. Some CARES Act funds were allocated to COVID Related State Unemployment Insurance Benefits thereby avoiding raising state unemployment taxes on Delaware businesses in order to repay federal unemployment insurance borrowings.

The State also immediately designated money for direct response purposes such as COVID testing and tracing, technology to allow for remote work, loans for small businesses, immediate rental assistance, keeping child care delivery in business for essential workers, and supporting local governments not eligible for direct CARES Act funds.

As a secondary response, Delaware provided Relief Grants to support small businesses and non-profits, the Rapid Workforce Training and Redeployment Training Initiative for those unemployed due to COVID, mortgage and rental assistance, and broadband for impacted students/schools/businesses, and then provided additional grants to businesses, non-profits, and childcare institutions most impacted by COVID.

The CARES Act funds that we received must be spent down by December, but we just don't know what's going to happen. All signs indicate that the pandemic will remain with us until a reliable vaccine is discovered, produced, and administered to a large portion of the population. The gap between hiring employers and jobless claims is an indication that consumer and business behavior will not return to normal until the virus is defeated.

A failure to develop a broad range stimulus plan will leave states running out of CARES Act money, and individuals putting an even bigger strain on state service programs. If the federal and state governments cannot guarantee local governments, small businesses, institutions of higher education, non-profits, and the public that they will provide a safety net to continue to address COVID related needs well into the next calendar year, we can expect to see (and are already beginning to see in some sectors) anticipatory layoffs and reductions in consumer, business, government, and non-profit spending and investment.

As time goes on, the inability to pass much needed additional stimulus will not just force states into draconian budget cuts; it will delay our recovery and continue to pressure our shared constituents. We need a federal partner that understands the challenges facing state and local governments will not simply go away after the election. State leaders will certainly not back away from delivering that message.

Sincerely,

Colleen C. Davis
Delaware State Treasurer

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