By Erlinda A. Doherty
The federal government has enacted several major response measures to help states mitigate the public health and economic effects of the coronavirus (COVID-19) pandemic.
While the immediate toll of the virus has been a virtual shutdown of state economies, the longer-term effects from a choking off of most revenue sources will be even more severe and enduring.
Historically, in times of severe economic distress, the federal government has stepped in to help stimulate the economy and provide states with relief. Let’s review the financial support Congress and the administration has provided thus far to states.
Phase 1—Emergency Supplemental Funding
The “Coronavirus Preparedness and Response Supplemental Appropriations Act,” enacted on March 6, provided $8.3 billion primarily to the Centers for Disease Control and approximately $1.05 billion to states in grants or cooperative agreements. States began accessing these funds just before states and localities implemented social distancing measures and the financial effects of the virus were beginning to resonate through local economies.
After the World Health Organization declared a global pandemic, President Donald Trump on March 13 declared a national emergency via the National Emergencies Act (NEA) and the Stafford Act. The NEA declaration (NCSL Alert) allowed for the waiver of various federal requirements and the activation of emergency authorities already in place in federal statutes.
Among other key provisions the Stafford Act declaration allowed states access to COVID-19 response assistance for eligible activities from the Federal Emergency Management Agency (FEMA)’s Disaster Relief fund (DRF)—which has since collectively held nearly $90 billion, due to supplemental appropriations –as well as low-interest loans to small businesses from the Small Business Administration’s Economic Injury Disaster Loan Program (EIDL)—which has roughly $70 billion available.
States scrambled to enact legislation addressing the outbreak through supplemental appropriations or by tapping into their “rainy day funds,” even as legislatures began suspending or postponing sessions because of social distancing measures.
Phase 2—Families First Coronavirus Response Act
On March 18, the president signed the second major package of relief measures designed to support individuals and businesses. HR 6201, known as the Families First Coronavirus Response Act (FFCRA), provided small and midsize employers refundable tax credits that reimbursed them for providing paid sick and family leave wages to their employees for Coronavirus-related leave.
It also gave $1 billion to states for emergency transfers to pay for unemployment benefits. Other direct resources to states were funneled to provide additional resources for a variety of public health services, and provided states the option for a 6.2 increase in their Medicaid programs federal medical assistance percentages (FMAP) and Title IV-E funding. Expanded paid sick leave and unemployment measures provided some support to businesses allowing them to close and further implement social distancing measures. Closing these businesses would have catastrophic effects on state revenues, many of which had already or were in the midst of shutting down their statehouses by this point.
Phase 3—The Coronavirus Aid, Relief, and Economic Security Act
By far the largest federal financial response was enacted March 27 and provided $2.2 trillion in resources to battle the far-reaching effects of the virus. The Coronavirus Aid, Relief, and Economic Security (CARES) Act (NCSL’s COVID-19 Stimulus Bill) created several sources of direct funding for states including:
- $150 billion to states and localities for the Coronavirus Relief Fund (CRF) to cover COVID-19 related expenses.
- $30 billion for an Education Stabilization Fund for states, school districts, and institutions of higher education for costs related to the coronavirus.
- $45 billion for the Disaster Relief Fund through FEMA.
- $1.4 billion for deployments of the National Guard.
- $100 billion for the Provider Relief Fund.
The creation of the CRF was of particular interest to states because the initial hopes—and state-local advocacy efforts in support for these funds—were that they could be used to compensate for drastic revenue shortfalls that states were already beginning to experience at the end of fiscal year (FY) 2020 and estimate for FY 2021. While originally conceptualized as a broad economic “stimulus” package thought to include states, $1,200 in payments to individuals and $500 billion in the Paycheck Protection Program (PPP) to businesses constituted the bulk of such direct support.
Phase 3.5—Release of CRF Guidelines and Phase 4
Almost simultaneously Congress passed (HR 266) April 23 the Paycheck Protection Program and Health Care Enhancement Act, which provided an additional $310 billion to the PPP, $75 billion in additional funds for the Provider Relief Fund and $25 billion for testing capability, and $60 billion in small business disaster loans, while the Department of Treasury released its much anticipated guidelines for accepted expenses covered in the CRF. These guidelines defined the list of “COVID-19 related expenses” covered under the CRF and confirmed that states were prohibited from using such funds to replenish state budgets experiencing severe revenue shortfalls.
States grappling with anticipated revenue shortfalls ranging from 15-20% will have to determine what financial resources will be available to them—and in what form—during the fourth phase of federal response to the virus. Expected to be another mammoth measure to help support the U.S. economy during this unprecedented pandemic, states are hoping that such a response will help address lost revenue as they combat the economic and public health effects front lines.
Erlinda A. Doherty is director of NCSL's Budgets and Revenue Committee.