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Capitol Report

Here’s how bad state budget shortfalls could get, as aid battle set to ramp up

California expected to exhaust unemployment compensation trust fund in less than two weeks

City of Hialeah employees hand out unemployment applications to people in their vehicles in Hialeah, Fla., on April 8.

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States could experience crushing budget shortfalls worse than seen during the 2008 Great Recession as they grapple with the coronavirus crisis, experts are warning, as debate in Washington turns to the next round of emergency aid.

A recent analysis by the Center on Budget and Policy Priorities estimated that states appear on the brink of shortfalls that could total more than $500 billion.

In a letter to congressional leaders this week, the National Governors Association asked for that sum to be approved, saying revenue losses will force states and territories “to make drastic cuts to the programs we depend on to provide economic security, educational opportunities, and public safety.” The national economic recovery will also be “dramatically hampered” without aid, the NGA wrote.

Also see:These states are loosening economic shutdown orders; Texas expected to announce new rules soon.

States are stressed among other ways by the millions of people filing for unemployment benefits.

California, for example, is expected to exhaust its unemployment compensation trust fund in less than two weeks, according to a tracker by the Tax Foundation. California, New York and Ohio could run out of money to pay claims filed to date by the end of April, according to the group.

Read:Jobless claims jump another 4.4 million — 26 million Americans have lost their jobs to the coronavirus.

Jared Walczak, the foundation’s director of state tax policy, said relief for the trust funds has been discussed in prior downturns, in the form of forgiving some portion of unemployment insurance loans from the federal government.

President Donald Trump on Thursday signaled he would be open to including aid to states in the next round of assistance from Washington, saying it’s “certainly the next thing we’re going to be discussing.”

But the president left the type of aid vague and suggested Democratic-run states like New Jersey and New York were fiscally irresponsible before the crisis.

Trump’s remarks came after Senate Majority Leader Mitch McConnell called in an interview for a “pause” in Washington on more aid. “I think this whole business of additional assistance for state and local governments needs to be thoroughly evaluated,” McConnell told talk show host Hugh Hewitt on Wednesday. New York Gov. Andrew Cuomo on Thursday blasted McConnell’s suggestion that states should pursue bankruptcy rather than ask for more federal aid.

Read:Next coronavirus aid package may not pass Congress until June as battle lines harden.

Senate Minority Leader Chuck Schumer said in a radio interview on Friday that McConnell’s comments would work against him as lawmakers devised new aid.

“I think actually what he said has given even more momentum for state and local assistance,” the New York Democrat told NPR.

Brian Sigritz, director of state fiscal studies at the National Association of State Budget Officers, said budget shortfalls are being worsened by everything from lower sales-tax collection due to reduced consumer spending to falling gasoline-tax collection as Americans spend less time driving.

States have shared about $150 billion under financial aid legislation to date. So far, enacted legislation has authorized about $3.6 trillion of fiscal support, according to the Committee for a Responsible Federal Budget.

U.S. stocks US:DJIA US:SPX, which have been battered by the coronavirus crisis, posted small gains on Friday.

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