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House Ways and Means Chairman Richard E. Neal said he wants to go back to the future in the next round of coronavirus relief aid.

The Massachusetts Democrat told the nation’s mayors Wednesday that he would try to resurrect a federal revenue-sharing program for cities and states that was popular in the 1970s and 1980s. The initiative would be part of a Democratic push to help states and local governments that are bleeding from lost revenue during the economic shutdown.

“We are going to insist, on our side, this package include direct assistance to all of you,” Neal told the U.S. Conference of Mayors in a video teleconference that was streamed live on Facebook. 

“I’ve even suggested, you should know, we contemplate returning to a grant initiative that fell by the wayside in the 1980s called revenue sharing to help you with getting through these challenging moments,” he said.
 

While he offered no details, Neal said a proposal could be unveiled “in the next few days, certainly within the next week.”

General revenue sharing

A program known as general revenue sharing, which offered largely unconditional grants to states and local governments, began under the Nixon administration in 1972 and was extended several times as its popularity grew. A Neal aide confirmed the congressman was considering trying to revive some form of that program, among other ways to help states and cities.

By the time it expired in 1986, the program had transferred about $83 billion from the federal government to state and local governments, according to the Congressional Research Service. That level of assistance would equate to about $313 billion over 15 years in 2008 dollars, the CRS calculated in a 2009 report.

Money was distributed by a formula that considered a locality's population, per capita income, taxing ability and tax collection efforts. The program was designed to help ease state and local budget shortfalls, while giving local officials greater say in how federal money should be used, the CRS said. 

“Revenue-sharing was a success from the beginning,” a New York Times editorial said in October 1986, as the program ended amid mounting federal budget woes. “Big cities got a boost and small-town America could for the first time count on direct aid from Washington. There were no strings on how the money could be used, and the oversight requirements were simple.”

But the CRS cautioned that the effectiveness of a resurrected program wouldn’t be guaranteed. The agency studied the issue in 2009 as Congress considered its options for responding to the 2007-09 Great Recession. Revenue-sharing grants, it said, “may be subject to two time lags, thus increasing the potential for mistimed fiscal policy.”
 

It’s not clear how long it would take Congress to agree on a distribution formula, which can raise a host of fairness questions. Basing grants solely on need, for example, means that “states that may have been more fiscally responsible would receive less, possibly violating the fairness criterion,” the CRS said.

Neal said he was inclined to adopt guidelines used in the existing Community Development Block Grant program, which provides grants for low-income housing and economic development projects.

It’s not clear how quickly grants could get to state and local governments to ease their current budget shortfalls, the CRS said. Grants that take months to deliver may prove useless for the current fiscal year, for example.

Governors have been clamoring for federal relief of as much as $500 billion to make up for revenue losses. Cities and counties have asked for about $250 billion — a request reiterated to Neal in the videoconference Wednesday.

“There will not be an economic recovery if our states and our cities were bankrupt,” said Pittsburgh Mayor Bill Peduto, a Democrat. Recalling the steel industry collapse that devastated his city in the 1970s and 1980s, he called for federal help to come quickly. “It took 30 years for us to dig out of that hole,” Peduto said.

All politics is local

Congress provided $150 billion in state and local aid as part of a $2 trillion relief package enacted last month. Speaker Nancy Pelosi suggested Wednesday that the next round of aid could be far more expansive.

The aid last month went to states as well as counties and other local jurisdictions with more than 500,000 residents — a formula that left many smaller cities and counties feeling neglected.

Pelosi and Senate Minority Leader Charles E. Schumer later proposed another $150 billion in negotiations over the more recent aid bill for small businesses and health care providers. About $53.6 billion of the funding for localities would be distributed based on the CDBG program that Neal cited.

That proposal, which wasn’t included in the final bill because of GOP objections, would have delivered about $37.5 billion of the local money to cities with more than 50,000 residents and urban counties with at least 200,000 residents. Less populous localities would have received about $16 billion.

Pelosi said at a Wednesday news conference that she now envisions two or three separate pots of money to target states, counties and municipalities. “And we can take it all the way down, we’re thinking to 10,000 and fewer,” she said of local population sizes.

Senate Majority Leader Mitch McConnell has expressed reservations about providing another round of state and local aid as the federal deficit soars.

He suggested states could consider declaring bankruptcy and said he wanted assurances that federal money would be used only for the COVID-19 pandemic and not to finance long-standing problems such as pension fund shortfalls.

Jeff Williams, the Republican mayor of Arlington, Texas, told Neal that such concerns should be easy to alleviate. “The revenue loss is the direct result of the coronavirus, and it can definitely be limited to that,” he said. “It’s easy for the cities to document.”