Virus relief bill leaves out local governments

President-for-22-more-days Donald Trump has spread his chaotic mojo across a $900 billion COVID-19 package, leaving beleaguered Californians hoping an unlikely coalition of Democrats and Trump will provide long awaited economic relief – but without a lifeline for deficit ridden local governments.

Trump had been threatening to veto the relief bill, but finally signed it Sunday, while still pushing to increase the package’s direct $600 stimulus payments to eligible taxpayers to $2,000.

Monday, the House climbed on board the Trump train, and passed the $2,000 figure. The amended amount still needed to be passed by the Senate. Tuesday, Majority Leader Mitch McConnell (R., Ky.), amid growing Republican support for the higher payments, said the Senate will look into the changes this week, which would will add several hundred billion dollars to the cost of the aid package and make it even more unlikely any aid will be coming for state and local governments.

Under the original figures, households will get $600 per adult and $600 a child, down from $1,200 and $500 in the first round delivered earlier this year. Congress established a Jan. 15 deadline for making the stimulus payments, but U.S. Treasury officials say they expect to start sending out checks this week and if the payments increase, there will be subsequent payments for those who already received checks for $600.

The relief package additionally adds $300 to weekly unemployment payments for 11 weeks and extends two other unemployment programs. It also supplies more than $300 billion in relief for small businesses — including a second round of the Paycheck Protection Program — and pours more than $50 billion into distributing coronavirus vaccines.

For California, Gov. Gavin Newsom has estimated the state would receive at least $50 billion in benefits including $20 billion in unemployment assistance; $17 billion in direct stimulus checks (though this figure could more than triple); $2 billion in rental assistance; $1.3 billion for COVID-19 testing, tracing and vaccines; and help for small businesses. The bill also provides $8.5 billion for schools – including about $1 billion for community colleges such as Cabrillo College.

But, here’s the rub: The relief package doesn’t provide California state and local governments any direct aid.

This might not be a major issue for Sacramento, since tax revenues have been coming in higher than expected during the pandemic as affluent Californians have largely maintained their incomes by shifting to home work while their stock market holdings have soared. This steady flow of income taxes from the 1 percenters, coupled with spending cuts made in June’s budget deliberations, are producing a one-time $26 billion windfall for the state, according to the Legislature’s budget analyst.

A budget squeeze, however, is hammering local governments struggling to find revenues in the pandemic-caused economic slowdown, with the vast majority facing deficits. This year, before the pandemic,55 counties owed more money than they had, largely due to the compounding costs of public employee pensions and health benefits for retired workers. The situation is more dire today. Many cities and counties, moreover, are still on the hook for raises promised to public employee unions — leaving them with little choice but to lay off employees or slash services.

Cuts in local services are shaping up to be a major story in 2021, unless federal aid shows up.

Santa Cruz faces similar problems. In November, the City Council voted to adopt a recovery plan in response to a financial deficit exacerbated by the pandemic, after making budget cuts of roughly $5.175 million in October to chip away at the deficit.

As the pandemic stretches on and local revenues fall, local governments in 2021 may feel they have little choice but to raise taxes to stave off spending cuts that inevitably will fall hardest on the poor and most vulnerable.

Californians, in a state where the tax burden is already high, have not been enthusiastic in recent elections about tax hikes. Heading into 2021, the thought of driving out more of the state’s biggest taxpayers is yet another painful dilemma for Newsom.