Countercyclical aid: Common sense

RTA, CTA, Metra, Pace plead for COVID-19 relief, illustrating the need of state and local governments in an economic crisis

Mass transit needs COVID-19 relief to make up for lost fares and keep rolling. The same goes double for states like Illinois, where the problem with lost tax revenue is even larger and more multifaceted. (One Illinois/Ted Cox)

By Ameya Pawar and Ted Cox

The three major Chicago-area mass-transit agencies and their overarching umbrella organization issued a joint statement Thursday pleading for additional federal COVID-19 relief.

There’s no better illustration right now of the need for what’s known as countercyclical aid.

But let’s leave the public-policy jargon aside for the moment, and look instead at the issues raised by the joint statement from the Chicago Transit Authority, Metra, and Pace, released just before the Thursday board meeting of the Regional Transportation Authority, and signed by the heads of all four agencies.

Touting the work all the mass-transit agencies have done in keeping their buses and trains safe and running in the midst of the pandemic, the statement goes on to say: “Business leaders recognize that transit will be essential for economic recovery, but significant financial challenges mean this can’t be taken for granted. The federal CARES Act last spring included $25 billion for U.S. transit systems, providing our region with a one-time infusion of nearly $1.4 billion that has sustained our operations during this pandemic. But make no mistake: without additional federal relief, the northeastern Illinois transit system and others across America will face a significant shortfall in 2021 due to declining revenues.”

Mitigation efforts to stem the spread of COVID-19 have caused an economic collapse, and of course an accompanying decline in ridership on all those transit hubs. Yet essential workers need them to get to their critical jobs — the reason the CTA, for one, maintained as close to its usual schedule as possible even in the worst of the coronavirus lockdown in March. And everyday workers will need them again, just as they did in the past, as the economy recovers.

No work, no ability to pay for transit; no transit, no ability to get to work. It can easily turn into an economic death spiral unless one side keeps the system going until the other side has the ability to respond.

“No work, no ability to pay for transit; no transit, no ability to get to work. It can easily turn into an economic death spiral unless one side keeps the system going until the other side has the ability to respond.”

Yet, without adequate fares to fund mass transit, where can those agencies go for help in an economic crisis? They look to the state and, like the state itself, to the federal government.

When there is an economic crisis, because state and local governments can’t print money, they have few options: cut costs, raise taxes, borrow, or some combination of the three.

Debt is hard when you’re already in trouble, as the state of Illinois well knows. So it comes down to make cuts or raise taxes, neither of which you want to do when you’re trying to jump-start the economy at the local level.

States are in a pinch. So the idea of countercyclical aid is that, when the economy is in crisis, that’s exactly the time the federal government should step in and give states and local governments money. If not, they have to make cuts that not only cripple critical social services — not just mass transit, but police and fire protection and public education — but also cripple the ability of the tax base to provide any revenue at all.

This is exactly the kind of time you should be bolstering state and local governments, otherwise a recession could spiral into a depression, with no perceivable end.

The idea of countercyclical aid sounds counterintuitive, but it couldn’t make any more common sense. Raise taxes and cut spending in boom times, to build up a surplus and a rainy-day fund, and increase spending and cut taxes in times of crisis, the better to minimize the damage and spur a recovery.

Unfortunately, under President Trump, the government did the exact opposite, driving up the deficit with its $1 trillion tax cut to the very rich, leaving the federal government with precious few resources to draw on when the coronavirus crisis hit.

The hypocrisy inherent in that approach has only continued with the Trump administration’s attempt to address the economic collapse stemming from the pandemic. As stocks crashed, Trump and the Federal Reserve moved quickly to backstop major corporations with grants and no-interest loans, basically funding a corporate debt frenzy and artificially boosting the stock market (Trump’s main focus in the crisis, even as 170,000 lives and counting were being lost).

What did the federal government do for states and local governments, which have seen tax revenue dry up the same way mass transit has seen fares evaporate? The CARES Act providing coronavirus relief set up a $500 billion Municipal Liquidity Facility, but the Federal Reserve has insisted — in marked contrast with its coddling of big business — that it charge interest and penalty fees for states and cities that actually draw on it.

The result of that was that only Illinois was desperate enough to borrow from it, taking $1.2 billion at 3.82 percent interest, in part to fill the gap in revenue when the income-tax deadline was pushed back from April to July in the pandemic. The Fed moved to cut those rates last week, but only by half a percentage point, meaning that “municipalities that want to borrow from the Fed will now need to pay between 1 and 5.4 percentage points above benchmark interest rates for loans of up to three years,” according to Barron’s. The business publication went on to point out that “the current costs of the Fed facility remain substantially higher than market rates,” calling those “onerous terms.”

Given all that background, let’s return to the plea from the transit agencies: “Therefore, we call on Congress to provide $32 billion for transit nationwide in a new COVID relief package, as recommended by the American Public Transportation Association. Within our region, we will work together to make the difficult choices necessary to sustain our transit system despite these unprecedented challenges.”

In that, they were echoing a position already staked out by U.S. Reps. Jesus “Chuy” Garcia of Chicago and Jerrold Nadler of New York: $32 billion was essential to bolster mass transit, to keep it rolling for the day when all workers return to their jobs as the economy recovers.

The situation is no different at the state level, it’s just that the funding problem is larger and more multifaceted. What we need right now in Illinois is for the state government to give renters and homeowners relief and fund critical social services, to help cities — which have also suffered lost tax revenue — pay for police and firefighters and teachers, not cut services and lay off staff, which again would only worsen the downturn.

“The situation is no different at the state level, it’s just that the funding problem is larger and more multifaceted. What we need right now in Illinois is for the state government to give renters and homeowners relief and fund critical social services, to help cities — which have also suffered lost tax revenue — pay for police and firefighters and teachers, not cut services and lay off staff, which again would only worsen the downturn.”

This is what’s needed now, for the federal government to step in and act — as the only government entity that can — and provide states and local governments the funding they’ve all lost in the coronavirus crisis. As former Democratic presidential candidate Andrew Yang has said, when your house is on fire you don’t ask about the cost of the water to put it out.

With 1 million more U.S. workers having filed for unemployment just last week, there is little hope for what the Trump administration has called a V-shaped recovery, bouncing back from the collapse this spring. We’re in this for a while, so as we backstop corporate interests, why aren’t we doing the same for our local governments — the backbone of our social system?

The $3 trillion HEROES Act — providing a third of that to state and local governments, along with $25 billion for the Postal Service to prepare for mail-in voting in the fall election and an extension of the $600 a week in extra unemployment benefits to the jobless — passed the House in May, but has been left to sit in a stack of bills atop Senate Majority Leader Mitch McConnell’s desk ever since. Negotiations for a new coronavirus relief package went nowhere because Republicans couldn’t agree with themselves or President Trump about what was necessary, much less congressional Democrats.

Perhaps, going forward, we should take the politics out of it entirely and mandate it so that, in the event of an economic crisis, countercyclical aid kicks in and states and local governments and mass-transit agencies automatically get funding to make up for lost revenues. That would give government agencies — and the people who rely on them, you and I — the assurance that they’d have the resources to carry on and recover. It might seem counterintuitive, but it’s really just common-sense pragmatism.