Prospects for COVID-19 Stimulus Package Fade: Will We Have to Wait for A New President and New Congress to Negotiate Relief for States and Their Public Schools?

Negotiations between House Speaker Nancy Pelosi, White House negotiator Steve Mnuchin and Senate Republicans for a second coronavirus relief bill have collapsed until at least after the election—maybe until a new Congress convenes in 2021 and, perhaps, a new President takes over.  Senate Majority Leader, Mitch McConnell has declared that the U.S. Senate will not even be back in session until November 9.

Of immediate urgency is essential assistance for individuals and small businesses now that most of the programs funded by last March’s CARES Act have run out—the one-time $1,200 stimulus checks, the small business paycheck protection program, pandemic emergency unemployment benefits, an eviction moratorium, and support for health coverage. But there is another critically important need—one that is slightly farther removed from families’ immediate crisis.

Through months of negotiations, the two sides could never reach any agreement on one of Nancy Pelosi’s top priorities and something essential for the nation’s over 13,000 local public school districts: significant relief for state and local governments. State funding averages 40 percent of all public school funding, with local funds comprising around 40 percent.  President Donald Trump and some Republican  Senators opposed what Trump called “a bailout for poorly managed ‘blue’ states.”  While Trump and so-called “deficit hawk” Republican Senators have politicized the issue, here is how—last April—Rutgers University education funding expert, Bruce Baker, and Albert Shanker Institute policy expert, Matthew Di Carlo defined the urgent need for relief for state and local governments: “The most terrible and lasting effects of the coronavirus pandemic will of course be measured in loss of life. But a parallel tragedy will also be unfolding in the coming months and years, this one affecting those at the beginning of their lives: an unprecedented school funding crisis that threatens to disadvantage a generation of children. It currently is difficult to make any precise predictions about the magnitude of the economic recession caused by the coronavirus pandemic, except to say that it has already started and it is likely to be severe. The revenue that funds public K-12 schools—almost 90 percent of which comes from state and local sources—will see large decreases… Making things worse, school districts in many states have yet to recover from the last recession, the so-called Great Recession, which officially began in late 2007 and devastated state and local education budgets.”

On Wednesday, the Wall Street Journal‘s Heather Gillers and Gunjan Banerji analyzed how a COVID-19 recession continuing for at least the next two years will affect the states: “U.S. states are facing their biggest cash crisis since the Great Depression.  Nationwide, the U.S. state budget shortfall from 2020-2022 could amount to about $434 billion, according to data from Moody’s Analytics…. That’s greater than the 2019 K-12 education budget for every state combined, or more than twice the amount spent that year on state roads and other transportation infrastructure…. Even after rainy day funds are used, Moody’s Analytics projects 46 states coming up short, with Nevada, Louisiana and Florida having the greatest gaps as a percentage of their 2019 budgets… States are dependent on taxes for revenue—sales and income taxes make up more than 60% of the revenue states collect for general operating funds…. Both types of taxes have been crushed by historic job losses and the steepest decline in consumer spending in six decades… The U.S. economy has steadily recovered since the spring, and more than 11 million jobs of the 22 million lost earlier in the year have come back.  Still, the unemployment rate recently hovered at 7.9%, and there has been an uptick in permanent layoffs.”

One effect will be a reduction in teachers’ salaries, which are already significantly lower in many states than average salaries and benefits for similarly educated professionals.  In mid-September, the Economic Policy Institute showed the long term effects of the kind of government stinginess we see in too many states and which we have watched this summer in the U.S. Senate’s refusal to consider continued federal relief. Sylvia Allegretto and Lawrence Mishel released their annual report on the long-term teacher pay penalty which is making it hard in too many states to attract enough college students into teacher preparation programs and making it difficult for states to hire enough quality teachers.

In his new book, Schoolhouse Burning: Public Education and the Assault on American Democracy,  Derek Black worries about the long consequences of a COVID-19 recession for public school budgets: “If states cut public education with the same reckless abandon this time as last (the 2008 recession), the harm will be untold. A teaching profession that spent the two years prior to 2020 protesting shamefully low salaries may simply break. The number quitting the profession altogether will further skyrocket. No one will take their place. The number of college students pursuing teaching degrees was already shockingly low. Class sizes will continue on their decade long expansion. And the pre-kindergarten opportunities, mental health counselors, and other supports that disadvantaged students so desperately need—but which states wouldn’t fund during good times—might as well be on permanent hold.” Schoolhouse Burning, p. 258)

Last week, Education Week‘s Daarel Burnette II examined the current situation in the context of what happened during the Great Recession a decade ago: “The last recession was financially ruinous for poor and majority Black and Latino school districts, almost wiping out the progress states had made in the last half century in closing funding gaps between property-rich and property-poor school districts.  Many of these school districts, even before the pandemic, had yet to financially recover from recession-era budget cuts. The pandemic has again blown a crater in sales and income tax revenues on which property-poor districts are heavily reliant. Without a substantial federal bailout, low-income districts are expected to lose millions of dollars in the coming years, which will undoubtedly have academic repercussions.”

Describing last week’s collapse of negotiations for a second COVID-19 package between House Speaker Pelosi, White House negotiator, Mnuchin, and Republicans in the U.S. Senate The Wall Street Journal noted: “Administration officials acknowledge that Senate Republicans remain a major roadblock to passing a deal with a high price tag.” Throughout the negotiation process, Senate Majority Leader Mitch McConnell reported many Senators were refusing to support assistance for state and local governments. These Senators are the far-right, so-called “deficit hawks,” who are now alarmed about increasing the size of the federal deficit despite that they passed enormous tax cuts for the wealthy and corporations in 2011.

Last week, Nobel Prize winning economist and NY Times columnist Paul Krugman confronted the deficit hawks’ argument. Krugman assumes that the responsibility for passing COVID-19 relief will be delayed until we have a new Congress in January and a new administration headed by Joe Biden instead of Donald Trump. Krugman directs his advice to the new President: “Given the current and likely future state of the U.S. economy, it’s time to (a) spend a lot of money on the future and (b) not worry about where the money is coming from. For now, and for at least the next few years, large-scale deficit spending isn’t just OK, it’s the only responsible thing to do… (I)t will be crucial to provide another round of large-scale fiscal relief, especially aid to the unemployed and to cash-strapped state and local governments. The main purpose of this relief will be humanitarian—helping families pay the rent and keep food on the table, helping cities and towns avoid devastating cuts in essential services. But it will also help avoid a downward economic spiral, by heading off a potential collapse in consumer and local government spending. The need for big spending will not, however, end with the pandemic. We also need to invest in our future. After years of public underspending, America desperately needs to upgrade its infrastructure… And we should also do much more to help children grow up to be healthy, productive adults; America spends shamefully little on aid to families compared with other wealthy countries.”

While state and local governments are, for the most part, prohibited by law from borrowing, the federal government can borrow. Krugman continues: “When a government can borrow at low interest rates, and in particular when the interest rate on debt is well below the economy’s long-run growth rate, debt just isn’t a major problem. It doesn’t pose any threat to the government’s solvency; it doesn’t in any meaningful way compete with private investment.” “Under these conditions it would actually be irresponsible for the federal government not to engage in large-scale borrowing to invest in the future.”

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