Feds eye more cash, borrowing help for states

Boston Statehouse
Massachusetts State House_276543

Massachusetts State House

BOSTON (SHNS) – Talks between Republicans and Democrats on Capitol Hill about another “interim” COVID-19 relief package totaling between $250 billion to $500 billion fell apart on Thursday over the size and scope of the bill, but the Federal Reserve outlined $500 billion in new lending that could help Massachusetts and other states address potential cash shortfalls.

The new loan program for state and local governments through the country’s central bank was announced as part of $2.3 trillion in new lending planned by the Federal Reserve to prop up the economy until businesses are able to resume normal operations.

The lending program, state budget observers noted, could help Massachusetts borrow at lower interest rates to ensure sufficient cash flow to support payroll and other programs as sales taxes dry up and billions in income taxes traditionally due in April could be deferred to July.

“I do think it’s recognition by the federal government that their postponement of the tax deadline had fiscal repercussions for the states,” said Eileen McAnneny, president the Massachusetts Taxpayers Foundation.

The Legislature and Gov. Charlie Baker recently agreed to postpone the personal income tax filing deadline from April 15 to July 15 to align with the new federal tax filing schedule. That move, however, has the potential to defer some of the more than $3 billion in non-withheld income taxes expected between March and June into the next fiscal year.

The Federal Reserve announced that it would start buying up to $500 billion in short-term notes from states with at least two million people and cities of at least one million people through the end of September. The pricing would depend on the state’s bond rating at the time of the purchase, with “details to be provided later,” the Fed said.

While the borrowed money would have to be repaid within two years, Congressional Democrats are pushing for $150 billion in new direct aid to states as part of a $500 billion interim relief package before Congress starts discussing an even larger “Phase 4” stimulus bill.

“Transformational Relief”

House and Senate Democratic leaders unveiled their proposal on Wednesday, when U.S. Sen. Edward Markey also shared the details during a virtual talk with business leaders hosted by the New England Council.

“Right now our primary goal needs to be to slow the spread of this virus and we are all committed to that goal. We will flatten the curve, but we will not let this health care crisis forever flatten our New England economy,” Markey said.

The junior senator, who is in the midst of a re-election campaign in which he is facing a primary challenge from U.S. Rep. Joseph Kennedy III, said on one day last week his office received 700 calls from constituents with questions about the virus and accessing supports.

Before Congress tackles a “transformational relief” package to follow up on the more than $2 trillion CARES Act, Markey said Democrat and Republicans are trying to negotiate a interim bill that he would like to see include money for states and hospitals.

Senate Majority Leader Mitch McConnell and Republicans had hoped to pass legislation before the end of the week by unanimous consent to add $250 billion to the popular $350 billion Paycheck Protection Program, which offers small business loans to help keep workers on payroll.

“We do have to build on that strong down-payment but we should have additional provisions in it,” Markey told the New England Council.

He said Democrats were united in asking for $125 billion of the new money for small businesses to be “channeled through community-based financial institutions that serve farmers, family, women and veteran-owned small businesses and non-profits.”

Democrats also want to add $100 billion for hospitals and community health centers, a 15 percent increase to the maximum SNAP food stamp benefit, and $150 billion for state and local governments to “mitigate lost revenues.”

“We know that our cities are cash-strapped. We know that the state is spending a lot of money to make it possible for us to make it through this crisis,” Markey said.

McAnneny said Massachusetts, in some ways, is in a better position than other states because of the size of its $3.5 billion “rainy day” or stabilization fund and the fact that its Legislature is still in session to adapt to the changing landscape.

If the state wants to avoid dipping into reserves this year, however, MTF has said the state Treasury may need to conduct short-term borrowing to meet the state’s spending obligations. The foundation noted in a recent report that the state anticipated total tax revenue of about $4.5 billion in April, which would leave it with a cash balance of about $3.6 billion in April and a projected $2.5 billion balance for May 2020.

“Extending the tax filing deadline will reduce gross tax revenue inflows, potentially by billions of dollars, and pose a real risk that the general cash pool could be depleted in May and leave the state unable to make payments,” MTF concluded in its report.

Gov. Charlie Baker filed legislation (H 4593) authorizing the Treasurer to borrow what would be necessary as a result of the tax deadline shift to meet its short-term spending obligations, but the Legislature has not yet taken it up, and is unsure of its ability to pass a borrowing bill without a roll call vote at a time when most lawmakers are staying away from the State House to adhere to social distancing standards.

Sue Perez, the state’s assistant treasurer in charge of debt management, recently told the News Service that the state was able to make its April 1 local aid payment and was in a “very strong” cash position before the coronavirus crisis began, but she described the borrowing market as “extremely volatile.”

“There’s no playbook for any of this,” McAnneny said.

She added, “What I do know is that the demand from businesses for the PPP loans exceeded expectations. The point of the CARES Act was about stopping the hemorrhaging and making sure employees remain tied to their employers so when this is over the economy could bounce back quickly. That should absolutely be the priority of Congress, but they will need to provide some relief for states as well.”

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