U.S. Senate Republicans unveil HEALS Act, with no added aid for state/ local governments. Don’t bank on swift budget relief.

Yesterday, U.S. Senate majority released a $1 trillion federal pandemic relief proposal. The plan, as the Wall Street Journal reports, differs sharply from the $3 trillion package passed by the U.S. House. 

Senate Republicans rolled out a roughly $1 trillion coronavirus relief bill proposal Monday, launching a mad dash to reach a deal with Democrats on expiring unemployment payments and other aid disputes in the parties’ rival plans…

The number and size of the policy differences between Republicans and Democrats will likely make it difficult for the parties to come together on a compromise in just a few days.

As the WSJ reports, a lot of attention in the short-term will be on the extended of unemployment benefits. That’s appropriate; the additional UI benefit provided by the feds plays a big role in sustaining those individuals and families who have lost their jobs during the pandemic. The added relief also has been critical in sustaining consumer spending, which is critical to the recovery. The negotiations will doubtless be intense.

Another major issue dividing the Congressional chambers is the provision of financial assistance to state and local governments. The Senate, as the WSJ writes, provides no new money, although it does provide additional flexibility for funds already delivered.

State and local governments would get no additional aid under the Republican plan, though it would grant them more flexibility in using existing federal assistance. Democrats, by contrast, have allotted nearly $1 trillion to state and local governments to fill budget gaps opened by loss of revenue and growing expenses because of the recession.

Gov. Inslee and legislative leaders have said they are disinclined to go into a special session to address the state’s budget shortfall. As part of their rationale, they point to the state’s healthy reserves (though not nearly adequate for handling this crisis) and the prospects of additional federal aid. Yesterday, we cited a new Washington Research Council report that examines the cost of delay. The WRC assessed several scenarios, varying the dates on which budget action is taken and the degree to which some programs (e.g., basic education, debt service) are deemed off-limits for budget cuts. The table below summarizes the options.

Clearly, the longer lawmakers delay the deeper the cuts – or, conversely the larger the tax increase – required to address the shortfall. From the WRC,

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.

Welcome and justified as more federal aid would be, we wouldn’t bank on it. Swift action is required. The WSJ points out that even the more modest package proposed by Senate GOP leaders faces challenges in that chamber.

Republicans also have struggled to tamp down differences in their own ranks over the new round of deficit spending. Over the weekend, Sen. Lindsey Graham (R., S.C.) warned that half of the GOP caucus wouldn’t support the Republican bill, setting up a difficult negotiation ahead.

“Difficult” may be an understatement. Additional analysis from the Tax Foundation here.