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Northeast-Midwest Institute Posts Concept Paper on FRB Replacement of Non-Recoverable State and Local Revenue Shortfalls Resulting from COVID-19 Mitigation Initiatives
A concept paper
by the Northeast-Midwest Institute's Senior Fellow for Public Finance Policy Thomas H. Cochran proposes that state and local governments and their utility agencies should be held harmless for permanent tax and fee revenue gaps caused by the COVID-19 mitigation strategies put in place by Governors and Mayors/County Executives pursuant to federal guidance.
The concept paper outlines both macro-economic and sectoral rationales for the swift initiation of a new Federal Reserve Bank (FRB) facility which would purchase state "revenue gap anticipation notes" ("RGANS") sized to cover the unrecoverable shortfalls already appearing in many states' and localities' tax and fee revenue streams as a result of the partial economic shutdowns almost all states and localities are now experiencing at the same time as they are performing front-line service in the battle to detect, treat, and control the spread of the virus itself.
Analogizing from the CARES Act provisions mandating forgiveness of loans to small businesses which agree to continue paying employees and other key expenses, Mr. Cochran's draft concept paper proposes that the debt incurred in the sale of RGANs to the FRB be forgiven and become grants if the issuing states agree to continue spending at pre-pandemic levels per their budgets currently in effect and meet certain other conditions. For both states and localities, the forgiven amounts of debt would be net of amounts received for other than COVID-19 purposes under the CARES Act, (e.g. Title VI, which sets up a "Coronavirus Relief Fund").
Local governments and service utility agencies suffering permanent shortfalls and agreeing to continue their spending at pre-pandemic levels would access the forgivable debt proceeds through their state governments.
Northeast-Midwest Institute President Michael Goff commented that "While interest groups representing state and local Treasurers, auditors and other finance offers have rightly called on the Fed to help maintain liquidity and provide repayable bridge debt financing for delayed tax receipts. Mr. Cochran's concept note
goes further by proposing that the Fed forgive borrowings to maximize the counter-recessionary impact of the new facility and continue the vital public services being delivered by the states and localities in as uninterrupted fashion as possible."
The concept paper concludes by emphasizing the importance of speed and efficiency asserting that "To have maximum counter-recessionary value and to minimize the damage state and local revenue shortfalls do to the essential public sectors for which states and localities are responsible, the federal-level intervention must be as swift as possible and come with as little overhead friction (e.g. new bureaucracy, complex rules and regulations, etc.) as possible." Other alternatives such as a general revenue sharing program similar to that implemented during the Nixon Administration or "block grant" programs of the kind implemented during several subsequent administrations would take far longer to conceive, legislate, set up administratively, and execute.
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EPA Announces Plans for Spending $20 Million GLRI Increase
The Environmental Protection Administration (EPA) announced last week plans on how it will spend an additional $20 million for the Great Lakes Restoration Initiative (GLRI) that Congress provided through the FY 2020 appropriations process. The GLRI serves as the largest single federal investment aiming to accelerate efforts to protect and restore the largest system of fresh surface water in the world, while also leveraging state, local, and private investments to achieve critical restoration goals.
Since its inception, the GLRI has largely been funded at about $300 million per year (in its first year of funding in FY 2010, the GLRI received $475 million), however in FY 2020, Congress provided a total allotment of $320 million for the GRLI. According to the EPA, it will use the additional funding to:
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Accelerate the Cleanup and Restoration of Great Lakes AOCs ($7.5 million): The additional funds will be targeted to significant sediment remediation and habitat restoration projects to help meet the aggressive goals in GLRI Action Plan III to remediate, restore and delist U.S. AOCs.
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Fund Research and Development of Ballast Water Treatment Systems ($5 million): The additional funds will support further invasive species prevention by funding research and development of ballast water treatment systems for cargo vessels that operate primarily, but not exclusively, within the Great Lakes.
- Support the Great Lakes Trash Free Waters Grant Program ($2 million): The additional funds will continue efforts to provide healthy habitat for fish and wildlife by keeping trash out of the Great Lakes.
- Support Great Lakes states activities to reduce excess nutrient loads, restore habitat, and control and prevent invasive species ($5 million): The additional funds will be targeted for the highest priorities of the Great Lakes states to reduce excess nutrient loads, protect or restore habitat, and prevent and control aquatic invasive species such as Asian carp.
- Support Great Lakes National Program Office operations ($500,000): Additional funds are needed to support operations in the Great Lakes National Program Office.
Currently, Congress has largely been focused on the federal response to the COVID-19 pandemic, which has put some uncertainly into the FY 2021 Congressional appropriations process. Neither the House nor the Senate have released their allotment levels for the individual FY 2021.
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This Week in Washington
Normally scheduled House and Senate meetings have been curtailed due to the ongoing response to COVID-19.
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NEMWI: Strengthening the Region that Sustains the Nation
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