COVID-19 and America’s Safety Net

By: Sean Dix

The pandemic threatens to send millions of Americans into poverty. Already the number of Americans living in poverty has increased by 8 million people since May. The Federal Government has spent trillions of dollars on aid to help prevent that from happening, increasing the deficit over $3 trillion. However, state and local governments are the ones primarily responsible for implementing safety net programs like unemployment, Medicaid, and SNAP. Unlike the Federal Government, state and local governments must balance their budgets and cannot take on debt as easily. Millions of Americans struggling to have enough to eat and pay rent or mortgages are relying on states to maintain these safety nets. Without support from the Federal Government, however, states may be unable to maintain them at the level necessary to support their citizens through this crisis.

During the first lockdown, dozens of states encountered problems with their unemployment systems being outdated and understaffed, leading to thousands not getting the benefits for which they were eligible. This undoubtedly contributed to the spike in poverty as people had no income and no safety net to turn to. The expired CARES Act $600 unemployment supplement, now replaced by President Trump’s more limited $300 supplement, couldn’t help those stuck in the backlog or wrongly denied benefits by outdated systems. With cases rising and a second lockdown looming in areas across the country, the Federal Government needs to step in to ensure these systems are ready for another surge of applicants.

As a result of the pandemic, states are projecting shortfalls totaling over $400 billion over the next two years. For context, this is more than all states spend combined on K-12 education. The effects of these shortfalls have the potential to last for years and impact other funding that help Americans move out of poverty. For example, Ohio’s plan to increase education funding by $2 billion per year has been called into question due to a concern of lack funding. Education is a major source of mobility in American and is funded almost entirely by state and local governments.

The situation is also fluid and impacting states unequally. Arizona, after first projecting a $190 billion shortfall, is now project a surplus for 2020 because of greater than expected growth and Federal Aid. However, the pandemic is not over, and another lockdown could quickly deplete this surplus. Hawaii, on the other hand, was hit particularly hard because of its dependence on tourism. It may not see revenues recover until 2025.

The proposed HEROES Act included nearly $1 Trillion of funding for state and local governments, with funding based on populations, number of COVID-19 cases, and unemployment rates. This would go a long way in eliminating current shortfalls and preventing future shortfalls. Additionally, the law already allows states to borrow from the Federal Government to fund unemployment, without breaking balance budget requirements. Many states did so during the Great Recession and states have already done so during this crisis. For those wary of more federal debt, expanding this option to other safety net programs would keep the burden on the states, but allow them to pay it off over several years rather than with budget cuts next year. Congress should pass the HEROES Act or a similar funding act as soon as possible or risk more Americans falling into poverty.

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