Talks between Congressional Democratic leaders and White House officials on the next round of coronavirus aid are continuing on Capitol Hill this week, but a final deal that can pass both chambers of Congress appears to be a week to two weeks away.
Pressure on the two sides has increased after two key provisions of the CARES Act, the $2.4 trillion aid package approved by Congress in late March, expired at the end of July. Enhanced unemployment benefits of $600 per week expired on July 31st and a federal moratorium on evictions ended on July 25th. Lawmakers had hoped to reach agreement and pass another round of aid before the end of July, but were unable to find consensus.
The deal is being negotiated among House Speaker Nancy Pelosi (D-Calif.), Senate Minority Leader Charles Schumer (D-N.Y.), Treasury Secretary Steven Mnuchin and White House Chief of Staff Mark Meadows.
Notably, Senate Majority Leader Mitch McConnell (R-Ky.) has been mostly sidelined from the discussions. He has acknowledged that roughly 20 Republican senators are unlikely to support any bill due to their concerns about the impact of excessive spending on the federal deficit and other objections. As a result, any compromise needs to be palatable to Democrats and the White House.
While both sides said that “a little progress” was made during discussions on August 3rd, they also acknowledged that a full agreement remains distant.
Adding to the urgency is the congressional schedule. The Senate is scheduled to begin its annual August recess on August 7th, with plans to remain out of session until after Labor Day. The recess is likely to be delayed until the next round of coronavirus aid is approved. The House has already technically begun its recess, but leaders informed all lawmakers that they would be given 24 hours’ notice to return to Washington for votes on the coronavirus aid package.
Leaders of both parties have said they plan to remain in Washington until a deal is done. There is a growing sense that this will be the last major aid bill at least until after the election, so the incentive to get something across the finish line remains strong.
Vastly different approach than earlier coronavirus aid bills
The bitter divide between the two parties is a stark contrast to the bipartisanship that guided earlier coronavirus aid responses on Capitol Hill. Congress passed four different bills, totaling about $2.8 trillion, in March and April in response to the pandemic. All four were negotiated in a bipartisan fashion and passed both the House and Senate by unanimous or near-unanimous votes.
But the current round of aid has seen a much more partisan approach. House Democrats approved the HEROES Act on May 15 on a nearly party-line vote that saw just one Republican support the bill. Senate Republicans rejected the bill out of hand and made no attempt to propose an alternative until late July, when they introduced the HEALS Act without Democratic support.
The $3 trillion HEROES Act package includes roughly $900 billion for state and local governments; another round of $1,200 stimulus payments (plus $1,200 per child) to lower- and middle-income taxpayers; $200 billion in hazard pay for front-line workers; $175 billion for assistance with rent, mortgage payments and utilities; $100 billion for hospitals and health-care providers; $25 billion for the Postal Service; student loan forgiveness for certain borrowers; and more. The bill would also extend the $600 per week in enhanced unemployment benefits through January 2021.
The Republicans’ HEALS Act proposal is a much smaller package, with a price tag of about $1 trillion. It includes a reduction in the enhanced unemployment benefits to $200 per week through October; another round of $1,200 stimulus payments (plus $500 per child) to lower- and middle-income taxpayers; an expansion of small business loan programs; more than $100 billion for schools; increased tax credits for employers that keep employees on the payroll; a tax credit for taking steps to provide a safe work environment for employees such as enhanced cleaning and the provision of personal protection equipment; liability protections for business; and other provisions.
Common ground between the two bills is minimal, underscoring the vast divide that needs to be bridged during negotiations. The one major provision both sides appear to agree on is another round of stimulus checks to individual taxpayers.
Key unresolved issues
Among the key issues that have stymied negotiations and will need to be resolved are:
- Unemployment benefits: Many Republicans have opposed extending the enhanced benefits, arguing that they discourage employees from returning to work because some employees earn more from the benefits than they do on the job. More recently, Republicans have offered to continue extra benefits, but at a lower amount than the $600 that was in the CARES Act. Democrats have advocated extending the extra $600 per week through early 2021; last week, Pelosi proposed tying the amount of the benefit to the unemployment rate, with the benefit shrinking as the unemployment rate decreases.
- Aid for state and local governments. With nearly every state facing a budget shortfall—some of catastrophic proportions—money to help states and municipalities is the centerpiece of the Democrats’ HEROES Act. Republicans included no money for states and municipalities in their HEALS Act proposal, but numerous Republicans have acknowledged that they will need to meet Democrats somewhere in the middle. The two sides have not settled on a number yet, but it is widely expected that a compromise figure will eventually be reached.
- Liability protections. Senate Republicans have proposed a sweeping plan to shield businesses, schools, non-profit organizations and government agencies from COVID-19 related lawsuits as long as they make “reasonable” efforts to protect employees. Most Democrats are balking at the scope of the proposal. Finding a middle ground on this issue is proving to be particularly tricky.
- Postal service. Another major point of contention is aid for the U.S. Postal Service. Democrats support a significant increase in funding, both for general pandemic-related impacts and to help the service prepare for an anticipated huge increase in voting by mail this fall. Some Republicans have expressed concern about whether voting by mail is secure. The funding of the Postal Service has become a proxy for this larger debate over the integrity of the November election.
Once a framework has been agreed to, a bill will need to be passed by both chambers and signed into law by the president. That process is likely to take several days at a minimum, likely pushing final resolution into mid-August.
Bottom line for investors
Despite the slow pace of negotiations, we continue to think a deal will be struck this month—an outcome the market seems to be anticipating. The enhanced unemployment benefits have been a lifeline for millions of displaced workers in recent months, and returning to their home states without an agreement on that issue alone would seem to be a political impossibility for lawmakers on both sides of the aisle.
For municipal bond investors, additional aid for state and municipalities would be welcome. While we continue to think that is likely, nothing is certain until the final bill is approved.
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