State and local governments have been hit by billions of dollars in unexpected new costs as part of a coronavirus relief package enacted last month.

A $192 billion relief measure required employers with fewer than 500 workers to provide paid sick leave and family and medical leave benefits. The federal government promised to reimburse employers for the costs by offering refundable tax credits on the employer’s portion of each worker’s payroll taxes. 

But a little-noticed provision barred state and local governments from receiving the new tax credit, even though they are still required to provide paid leave benefits to their workers. 

As a result, state and local governments already straining from an economic gut punch must find new revenue to finance the paid leave benefit. The collective price tag of the new mandate amounts to $20 billion in the next two years, according to an estimate from the Congressional Budget Office.

Within days of the law taking effect, state and local government officials fired off a March 21 letter of protest to top House and Senate leaders.

“We’re against it in any way, shape or form because it is an unfunded mandate,” said Jon Jukuri, federal affairs counsel for the National Conference of State Legislatures, which joined the letter backed by the Council of State Governments, the National Association of Counties and other groups. “We’re going to continue to fight against it or get a fix of funding for it.”

And the same concern voiced by state officials was echoed at the municipal level. “The virus and our necessary response to it is pushing local governments to the economic brink, and unfunded federal mandates could be the push that sends some of them over,” said Michael Gleeson, a legislative manager for the National League of Cities, in a statement. 

Steep revenue shortfall

It's not that states and localities aren't receiving substantial funds from the slate of relief measures President Donald Trump has signed since the beginning of March. The same bill that contained the paid leave mandate also would provide states with $50 billion through increased federal Medicaid matching funds.

And a subsequent $2.3 trillion rescue package signed into law March 27 offered up a bevy of new aid to state and local governments. It contained $150 billion in direct aid along with other assistance for targeted purposes, such as $30 billion for education and $25 billion for public transit systems.

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But lawmakers already have acknowledged that more state and local aid is needed because of “the enormity of the potential fall in tax revenue” caused by the virtual national economic shutdown, according to a report from the Joint Economic Committee. It said the state of New York expects to receive only $4 billion from the package “despite a potential revenue shortfall of over $15 billion.”

House Democrats sought to resolve the paid leave problem for states and localities last month, when they introduced their own version of a $2.5 trillion relief measure that was a precursor to the package that finally became law. The Democratic measure would have extended the payroll tax credits to government employers to finance their paid leave benefits.

But that provision was rejected in the final bipartisan bill that became law. “Republicans were against a transfer of money from the federal government to state and local governments for this purpose,” said a senior Democratic aide who wasn’t authorized to speak publicly.

A House GOP aide said the blame lies with Democrats for insisting on a requirement that employers offer paid leave.

"Democrats have pushed for the paid leave mandate to be universal, even if that meant it was an unfunded mandate," said the aide, who also wasn't authorized to speak for the record. "The practical solution moving forward would be to remove that mandate."

Paid leave benefits were a centerpiece of the $192 billion relief measure enacted on March 18.  It requires employers who have fewer than 500 workers, along with government employers, to provide two weeks of paid time off, up to $511 per day, for workers who self-quarantine to seek a diagnosis or receive treatment for COVID-19.

It also entitles full-time workers to 12 weeks of family medical leave time off to care for children facing school closures from the virus. After two weeks of unpaid leave, workers are entitled to receive at least two-thirds of their usual pay for the remaining 10 weeks.

The unpaid leave provision wasn’t the only unfunded mandate that states and localities have been required to assume. The $2.3 trillion relief package included $400 million in grants to help states safeguard their elections from the coronavirus. 

Those grants, too, came with strings attached. States are required to provide matching funds equal to 20 percent of their federal grants. Democrats said they'd try to undo that requirement in a future aid package, however.

Speaker Nancy Pelosi made clear this week that the $400 million now in law is only about 20 percent of the amount Democrats want for election aid. The California Democrat also told CNN she would like some conditions on the aid removed.

Rep. Suzan DelBene, D-Wash., said Pelosi told Democrats on a conference call Wednesday that she'd like to eliminate the 20 percent state match for election security funds as part of a new COVID-19 aid bill the House could take up as soon as this week.

Lindsey McPherson contributed to this report.