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Notes on How “CARES 2.0” Can Fix the CARES Act’s Shortchanging of States in Our Time of Need

Earlier this month, Governor Steve Sisolak (D) directed all Nevada state government agencies to prepare for budget cuts, possibly as severe as 14% less than what the Nevada Legislature had approved last June. But wait, won’t the federal CARES Act send more money our way?

Yes, the CARES Act will give Nevada some money, but it probably won’t be enough to cover the state’s suddenly burgeoning budget shortfall. However, Congress can address this and provide a solution in its “CARES 2.0” legislation. We heard from a team of policy and fiscal experts to find out how. 

Who CARES (Act)? Actually, we need more CARE(S 2.0).
Photo by Andrew Davey

Just over a month ago, we discussed the underlying structural crisis hiding beneath Nevada’s seemingly perfectly balanced budget. While COVID-19 has hit hard across the nation, it’s especially cut to the bone here in Nevada, where our tourism-dependent economy goes into freefall when our tourism lifeline is cut off. 

Earlier this month, the Center on Budget and Policy Priorities (CBPP) estimated Nevada will receive $832 million in CARES Act funding. But considering that much of that money is specifically marked for direct relief efforts, and considering that the state already needs more resources to contend with the growing need for health care and health insurance, along with the growing demand for unemployment insurance benefits, that $832 million probably won’t be enough to cover Nevada’s rapidly growing deficit.

During a press call this morning, a team of CBPP experts called on Congress to include more funding for state governments in the “CARES 2.0” package that House Democratic leaders are promising to release and advance soon. In addition, they called on Congress to design “CARES 2.0” and any other future COVID-19 relief packages on real population needs and economic conditions rather than arbitrary political talking points.

“States face a fiscal crisis that’s much worse than the Great Recession a decade ago. They urgently need [greater fiscal relief]. Those cuts will make an already weak economy even weaker, and they will affect the state relief efforts we urgently need.” 
– Michael Leachman, CBPP
COVID-19, coronavirus, Steve Sisolak
Gov. Steve Sisolak discusses measures to help the public with housing stability amid the COVID-19 public health crisis next to State Treasurer Zach Conine, right, at a press conference at the Grant Sawyer Building in Las Vegas, Sunday, March 29, 2020. (Rachel Aston/Las Vegas Review-Journal/Pool) @rookie__rae

Early in the call, CBPP Senior Director of State Fiscal Research Michael Leachman warned, “States face a fiscal crisis that’s much worse than the Great Recession a decade ago. They urgently need [greater fiscal relief]. Those cuts will make an already weak economy even weaker, and they will affect the state relief efforts we urgently need.”

Leachman then specified, “We project that states will face a fiscal shortfall of $500 billion, and these [deficits] will last more than one fiscal year.” And why’s this? As Leachman described it, “Unemployment is skyrocketing now, and it will continue to rise in the coming weeks. We expect unemployment to gradually drop in the fall, but we expect higher unemployment to remain into 2021.”

From there, Leachman warned, “We project shortfalls that will amount to an astonishing 25% of states’ budgets.” Yet while the CARES Act includes $150 billion in overall aid for state, municipal, and Native American tribal governments, Leachman added, “We project states will still need another $360 billion to prevent this recession from worsening.”

“Over the last decade, tuition for public college rose 37%. K-12 budgets that were never fully restored led to teacher layoffs. Criminal penalties and jailing fees led to more people who are permanently poor.” 
– Elizabeth McNichol, CBPP
Photo by Andrew Davey

As we’ve already been discussing, gaming taxes and sales taxes aren’t exactly the most stable and sustainable sources of revenue for Nevada. With hotels and casino floors remaining closed, pool day clubs and indoor nightclubs closed for the foreseeable future, restaurants cutting back to takeout and delivery only, visiting consumers cutting back on travel, and local consumers cutting back on their expenses (Hello, a lot of them have lost their jobs and/or paychecks!), we can clearly see how this is a recipe for fiscal disaster. 

CBPP Senior Fellow Elizabeth McNichol harkened back to the Great Recession and the lasting aftermath as she urged federal policymakers to do better this time. As McNichol recalled, “Over the last decade, tuition for public college rose 37%. K-12 budgets that were never fully restored led to teacher layoffs. [Non-violent] criminal penalties and jailing fees led to more people who are permanently poor.”

We know this dynamic very well here in Nevada, as our own public schools (K-12 and college) still hadn’t fully recovered from the Great Recession when this “Corona Recession” hit. And while the Affordable Care Act (ACA, or Obamacare) has resulted in overall healthier health care infrastructure, Nevada still lacks adequate resources to care for everyone in need. If the state ultimately cuts anywhere close to the 14% worst-case scenario outlined by Sisolak’s office, then these already gnawing problems will become even greater crises.

“If the federal government adopts this, states will likely get ⅔ of what they need to cover their budget shortfalls.” 
– Aviva Aron-Dine, CBPP, on a potential Medicaid-based solution for states’ fiscal emergencies
Photo by Andrew Davey

During their press call and in a more detailed report they recently published, CBPP’s team of experts proposed more direct aid to states, and they specified that it must be aid that is not offered as loans that must be repaid when states just begin to pick up the pieces from this recession. CBPP Vice President for Health Policy Aviva Aron-Dine then added, “That help should be based on economic conditions, rather than forcing states to wait every year for Congress to go back into session.”

So how exactly can future aid packages be written to respond to economic conditions? Aron-Dine pointed to the Federal Medical Assistance Percentage (FMAP), or the percentage rates based on individual state income that determine federal matching funds for Medicaid and a few other federal social safety net programs, as a powerful solution. The Families First Coronavirus Response Act already provides a temporary boost in the FMAP that’s resulting in more federal Medicaid matching funds for states, but Aron-Dine and CBPP want Congress to permanently enhance the FMAP and tie all future COVID-19 relief funds to the FMAP in order to more efficiently distribute aid where and when it’s needed.

Photo by Andrew Davey

As Aron-Dine explained, “There are big advantages to basing aid on FMAP. They are simple to implement, timely, and enforceable.” Then she added, “In addition to helping states cover their [budget deficits], FMAP also protects people’s health coverage,” as the FMAP is a population and economy based formula instead of a discretionary program or a fast-and-loose “money cannon” slush fund. 

Aron-Dine posited that if Congress increases states’ FMAP 5% per each 1% rise in unemployment, that alone will go far in reducing the states’ budget deficits. Or as she put it, “If the federal government adopts this, states will likely get ⅔ of what they need to cover their budget shortfalls.”

So we have the FMAP. What else should be in Congress’ “CARES 2.0” road map to guide states out of this crisis?
Photo by Andrew Davey

Of course, ⅔ is not 100%. How can the federal government fill the remaining ⅓? According to the CBPP experts, Congress can extend the CARES Act’s Coronavirus Relief Fund past the end of the fiscal year and replenish it with additional funding to cover additional expenses and shortfalls that FMAP expansion can’t.

Last week, three of Nevada’s six members of Congress all promised an imminent “CARES 2.0” to address and resolve the shortcomings of the first CARES Act and the Families First Act. As House Democratic leaders work on developing “CARES 2.0”, this may be a good time for them to pay closer attention to what’s happening in the states (including ours) and respond accordingly.

If you’re in need of medical treatment, contact your primary health care provider first. If you fear you can’t afford treatment from a hospital or doctor’s office, check with the Southern Nevada Health DistrictWashoe County Health DistrictCarson City Health and Human Services, or the Nevada Department of Health and Human Services for resources in your area. For additional aid, check the Nevada Current’s and Battle Born Progress’ resource guides. If you can afford proper treatment and you are fortunate enough to help others in need, please donate to larger operations like Direct Relief and Mutual Aid Disaster Relief, and to local groups like Three Square.

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