No agreement in Congress on aid to state/local governments. Legislature should act on budget gap without further delay.

The Wall Street Journal reports Congressional leaders and the White House are making progress on pandemic-relief legislation. But details remain murky and the trillion-dollar aid package for state and local government still appears to be a bridge too far.

White House negotiators said they aim to reach a deal with Democrats on a new coronavirus-relief package by the end of the week, with both sides saying they made progress in talks to bridge differences in unemployment payments and other aid proposals.

“We’re going to try to reach an overall agreement, if we can get one, by the end of this week, so that the legislation could be then passed next week,” Treasury Secretary Steven Mnuchin told reporters Tuesday after meeting with House Speaker Nancy Pelosi (D., Calif.) and Senate Minority Leader Chuck Schumer (D., N.Y.)…

Neither side disclosed details of the offers that had been made on either side, or whether progress had been made on the most intractable of the issues, including aid for states and localities and how much money the federal government would provide to supplement state jobless aid.

The aid for state and local governments still appears to be a major sticking point, along with Democratic calls to eliminate the $10,000 cap on state and local tax deductions. Meanwhile, the expiration of the $600-a-week extra UI benefit threatens the fragile recovery, according to economists interviewed by the WSJ.

Many economists expect last week’s expiration of $600 in enhanced weekly unemployment benefits to lead to a sharp drop-off in household spending and a setback for the U.S. economy’s near-term recovery, even if the lapse turns out to be temporary.

The federal government was providing billions of dollars a week in extra jobless payments to workers—more than 12 million people in mid-July, the Labor Department said. The program, approved as part of a coronavirus aid package, expired at the end of July, and Congress and the White House remain at odds over how to extend the benefits.

The payments, economists say, allowed consumers to pay rent, utilities, car loans and credit-card bills, protecting the economy from the cascading effects of a sudden drop in consumer demand as the coronavirus pandemic swept across the U.S.

Agreement on some form of enhanced UI benefit looks to be more in reach than the aid to state and local governments, but that’s far from certain. CNBC reports,

By Tuesday morning, the parties had come close to a consensus in only a few areas, such as extending funding for Paycheck Protection Program loans for small business, an administration official told CNBC on Monday night. Mnuchin has said Democrats and the GOP agreed on the need to send another direct payment of up to $1,200 to Americans.

But neither side had budged on plans for extending extra federal unemployment insurance or offering relief to budget-crunched state and local governments, among other topics. Negotiators have failed to crack the impasse even after the $600-per-week jobless benefit and a moratorium on evictions from federally backed housing expired.

The Washington Research Council examines the Senate Republican proposal as it affects state governments.

One of the reasons Gov. Inslee has given for not calling a special session is to wait and see if Congress provides additional relief funds for state governments. Last week, the U.S. Senate released its proposed relief package. Negotiations with the U.S. House of Representatives are ongoing. The Senate proposal would allow the funds to be used for revenue shortfalls, but the ability is limited. Washington would not be able to cover its full shortfall.

The WRC has done the math on the importance of swift action to address the state budget shortfall. 

Depending on how many budget areas are subject to spending cuts, we estimate that necessary cuts could be from 8.8 percent to 28.2 percent if the Legislature waits until the regular session to address the shortfall. Had the Legislature acted in June, the necessary reductions would have ranged from 2.9 percent to 9.4 percent. The same concept applies to tax increases: To reach a target level of collections, a tax rate would need to be higher if applied over a shorter period.

Given the heightened uncertainty of federal aid and signs that the state economy continues to be challenged by rising COVID-19 numbers, a special session makes sense. Any adjustments made now will lessen the challenges lawmakers will confront in 2021.