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Draft Senate aid plan would cut direct funds to cities, counties

Variety of new restrictions on aid to states and localities, more money for broadband, among other changes

Sen. Ron Johnson, R-Wis., wants to make senators listen to the entire package being read on the floor before voting.
Sen. Ron Johnson, R-Wis., wants to make senators listen to the entire package being read on the floor before voting. (Caroline Brehman/CQ Roll Call file photo)

A new version of Senate Democrats’ coronavirus relief plan would put new restrictions on some $350 billion in aid to states and localities while diverting $10 billion of the money for cities and counties to “critical capital projects” like broadband access.

The revised 633-page text, obtained by CQ Roll Call, makes a variety of other adjustments from a version circulating over the weekend and the House-passed $1.9 trillion bill. One of the biggest changes, announced earlier Wednesday, would lower the income threshold at which direct payments cut off completely, from $100,000 to $80,000 for individuals and from $200,000 to $160,000 for joint filers.

Other changes include carving out $2.75 billion from overall funding for K-12 education and directing it to private schools that serve a “significant percentage” of low-income students.

And graduates who obtain student loan forgiveness due to emergency orders during the pandemic wouldn’t have to pay taxes over the next five years on that loan forgiveness, which ordinarily is treated as taxable income.

On the health care front, the latest version would set aside $8.5 billion for rural health care providers, apparently offset by extending by one year customs user fees that were set to expire in 2029 — an oft-used budgetary gimmick to keep costs down on paper.

[Senate aid package would lower income limit for direct payments]

It also would preserve an earlier Medicare reimbursement rate increase for hospitals in what are considered “all-urban” states — New Jersey, Delaware and Rhode Island — despite GOP opposition.

Another key health care change would fully subsidize health insurance premiums under the federal law known as COBRA for workers who leave their jobs. The House-passed bill and earlier Senate drafts would have required workers to chip in 15 percent of their premiums, while subsidizing the remainder.

Other changes include:

  • Dropping a section that would have provided special benefits to longshoremen that contracted COVID-19 while on the job.
  • Striking an offset that would freeze cost of living adjustments in retirement plan contributions, and replacing it with an expanded limit on business deductions for highly compensated employees, starting after 2027.
  • The addition of $110 million for the Federal Emergency Management Agency to provide food and shelter to families and individuals released from Department of Homeland Security detention.

State and local aid guardrails

The changes to state and local funding, sought by moderate Senate Democrats, could prove at least a little controversial with their House counterparts.

Total funding for states would remain the same at $195.3 billion, but direct aid for cities, counties and smaller units of local government would take a hit in order to finance the new $10 billion capital projects fund.

The reductions would come proportionally: the amount for counties generally would be cut by $5 billion, to $60.1 billion; metropolitan cities would get $3.5 billion less, or $42.07 billion; and so-called nonentitlement units of local government, or the smallest cities and counties, would get $1.5 billion less, or $18.03 billion.

There would also be new guardrails on the money for states and localities.

The funds would be distributed in two tranches — with 50 percent up front. States with a high proportion of unemployed individuals could receive the remainder of their funding simultaneously. But the rest would have to wait until they’ve spent at least 80 percent of the first tranche or 60 days before the start of their fiscal year starting in 2023, whichever is earlier.

And in order to receive the second round, states would have to prove they weren’t using the money just to stave off a tax increase they otherwise would need to impose. Contributions to state pension funds would also be barred. And states would have to use the money for certain purposes, including:

  • Aid to households, small businesses or nonprofits, or aid to “impacted” industries like tourism, hospitality and travel.
  • Funding government services that reduced due to the pandemic-related hit to tax revenue.
  • To make “necessary investments” in water, sewer, or broadband infrastructure.

The same restrictions would apply to units of local government, except they could receive their second tranche a year after receiving the first.

The Treasury secretary would be charged with writing regulations to recoup payments to states if the restrictions aren’t adhered to.

The $10 billion capital projects fund, meanwhile, would be distributed evenly with $100 million to each state, territory and the District of Columbia, with another $100 million for tribal governments and Native Hawaiians.

The rest would be distributed based on a formula, allocating 50 percent based on population, 25 percent based on proportion of individuals living in rural areas, and 25 percent based on the proportion of individuals living below 150 percent of the poverty line.

Once the text is finalized and senators have a budget score from the Congressional Budget Office and Joint Committee on Taxation, Senate Majority Leader Charles E. Schumer plans to offer a motion to proceed to the House-passed bill. A Senate Democratic aide said that wasn’t expected to occur until Thursday at the earliest.

Sen. Ron Johnson, R-Wis., has threatened to object to allowing debate to begin without reading the text of Schumer’s amendment in full, however, which could delay the process by some 10 hours. Only after the reading is dispensed with can the 20 hours of debate allotted to budget reconciliation bills begin, followed by a lengthy “vote-a-rama” session that could go into Saturday.

Peter Cohn and Jennifer Shutt contributed to this report.

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