Saturday, August 08, 2020

Inadequate, Unworkable, and Unlawful: The Trump Unemployment Aid Program

David Super

      President Trump’s effort to relieve the pressure he and Senate Republicans have been feeling over the expiration of enhanced unemployment benefits is a failure on every level.  It provides too little in aid.  It will miss many families in need.  It will expire very soon.  It likely cannot be implemented in some states.  And it is transparently unlawful. 

Unemployment Assistance in the Recession

     The CARES Act that Congress enacted in March did many things, including provide the Administration hundreds of billions of dollars to direct to businesses it favored.  From the perspective of combatting the hardship resulting from the recession, its most important provisions by far were those expanding the country’s decrepit unemployment compensation (UC) system.  All these improvements were temporary, with varying expiration dates. 

     The two most significant UC changes were an eligibility expansion (Pandemic Unemployment Assistance or PUA) to cover several kinds of unemployed workers (such as those in the “gig economy” and those with medical or child care problems) whom the UC system ordinarily leaves out and an increase in the often-minimal weekly benefit amount (Federal Pandemic Unemployment Compensation or FPUC). 

     Because decades of neglect have left most states with brittle, inflexible automated systems for their UC programs, FPUC could not provide a percentage increase to individuals’ benefits, as some might have preferred.  Instead, it added a flat $600 per week to the benefits of UC and PUA recipients.  This resulted in some of the lowest-paid workers receiving somewhat more than they previously had earned.  Research is now emerging suggesting that the disaster relief provided, critically PUA and FPUC, staved off the sharp increase in poverty that ordinarily accompanies a major recession.  It also kept consumer spending high enough to avoid large secondary economic effects beyond those caused by the pandemic itself. 

The Political Context

     Although PUA continues until the end of the year, FPUC effectively expired two weeks ago.  The House passed legislation over two months ago to extend FPUC (and to extend PUA through January).  As I previously noted, Senate Majority Leader McConnell made clear that he wanted to wait until the last minute to discuss any extension of FPUC.  When he finally did share his draft legislation, he faced rebellions both from his own caucus and from the Trump Administration.  By the time these differences were papered over, FPUC had already expired and tens of millions of people saw their UC or PUA benefits drop precipitously. 

     Senator McConnell ultimately released legislation that much of his own caucus declined to support and that President Trump called “semi-irrelevant.”  With his caucus splintered and apparently despairing of forming a common strategy with the White House, he then dropped out of negotiations.  House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer have been negotiating with White House Chief of Staff Mark Meadows and Treasury Secretary Steven Mnuchin.  This group reportedly took several sessions just to negotiate about what subjects they would discuss. 

     Although Republicans have sought short-term extensions of FPUC (typically at reduced levels and sometimes with unrelated poison pills added), Democrats have insisted on a comprehensive package.  Democrats remember their experience in April, when they agreed to move extra money for the Payroll Protection Plan (PPP) on an emergency basis, with promises that a broader measure would soon follow, only to see Republicans lose all interest in further relief legislation for two months. 

     In particular, Democrats are anxious to get substantial fiscal relief to local and especially state governments, whose revenues the recession has crushed.  Many states have passed highly unrealistic place-holder budgets as they wait to see if further federal fiscal relief will be forthcoming.  If it is not, they will have to make draconian cuts to basic services just as those services are most needed.  Despite the public and private pleas of many Republican governors, both the President and Senator McConnell have expressed vehement opposition to the level of fiscal relief needed to fill states’ revenue gaps.  

     Democrats also seek a (relatively inexpensive) fifteen percent increase in the basic Supplemental Nutrition Assistance Program (SNAP) benefit to respond to rising food prices and low-income families decreased ability to shop around.  Republicans have repeatedly rejected that as well.

The President’s Actions

     Today, the President announced four executive actions.  One, on preventing evictions and foreclosures, has essentially no substance:  it just tells various federal officials to do what they can.  Curiously, this is an area where the Federal Emergency Management Agency (FEMA) actually does have legal authority to make a positive difference with the funds available to it (unlike on unemployment compensation, as discussed below).  A second action, deferring (but not reducing) payroll taxes, seems destined to become a lesson in unintended consequences for years to come.  I lack the expertise to comment on the third, concerning student loans. 

     I wish to focus on the fourth action, purporting to offer unemployment assistance.  This is by far the most consequential, practically, politically, and legally.  If the President can persuade the electorate that this “takes care of” the unemployment compensation problem, he can relieve the pressure on him and Senate Republicans to agree to some of the Democrats’ legislative proposals. 

     The President directs FEMA to create a new program using $44 billion in Disaster Relief Funds that would allow states to send an additional $400 per week to people receiving UC, PUA, or other public unemployment benefits.  To participate in this program, states – which already face $555 billion in budget shortfalls as well as demands to help struggling local governments – would have to pay one-quarter of benefit costs as well as, apparently, the full administrative cost.  The President arbitrarily disqualifies the poorest of the unemployed:  those receiving less than $100 per week in regular benefits.  Once the program has spent the $44 billion, it would shut down. 

     With roughly 25 million people receiving unemployment benefits, the $300 federal share of the new weekly benefit would last about six weeks, or until mid-September.  In practice, many states’ antiquated unemployment automated systems will take a considerable length of time to be programmed to provide these benefits, to exclude workers with benefit amounts below $100, and to account for them so that the state can be charged its matching share.  Some states took as long as two months to get PUA fully operational this Spring.  Because the funds are not allocated by state, this likely means that the states that can start this program sooner will be able to draw down the full amount before some states with greater obstacles are able to get started.  Realizing this, some states likely will conclude that spending several weeks on a major computer reprogramming project that, once finished, with allow them to pay only a few weeks of aid is not viable. 

     Finding the required matching funds also will be difficult for states, both fiscally and legally.  In some, this will require action by a legislature that has adjourned for the year.  And with state budgets already in a holding pattern hoping that federal fiscal relief will avoid the need for deep cuts, many may have difficulty locating these matching funds.  Although the President states that $80 billion of the fiscal relief CARES provided is unspent, the great majority of that has been committed in state and local budgets in ways that cannot be undone without creating a further hole or reneging on commitments to local governments (which the Administration has pressed states hard to make). 

     The one-third reduction relative to FPUC, is likely to increase hardship and shrink consumer spending significantly.  So is the complete exclusion of workers with histories of working at or near the minimum wage, particularly in states that pay smaller fractions of prior wages as benefits.  Families that were living hand-to-mouth when they were working will not have room in their budgets to absorb these cuts.  The reduction is likely to cause more people to fall behind on their rent, mortgage, and utility bills, deepen shortages of food, and force heart-wrenching decisions to take jobs that endanger the health of the worker or her or his family members.  The impacts on African-American, Latinx, and immigrant households are likely to be especially dire

     Last, and certainly not least, the President’s actions are unlawful.  The Stafford Disaster Relief and Emergency Assistance Act does provide for spending Disaster Relief Fund to pay “Disaster Unemployment Assistance” (DUA).  That section, however, comes with two conditions that the President’s program violates.  First, FEMA may only provide DUA to those who are not eligible for any other form of unemployment compensation.  The President’s program, by contrast, is limited to those who are receiving other unemployment benefits.  And second, the statute caps DUA benefits at the amount that state UC programs would allow.  The whole point of the President’s program is to pay $400 per week more than those (inadequate) benefits.  Thus, DUA would probably be a plausible means of replacing PUA should it expire at the end of the year (if any funds remain) but it cannot replace FPUC.

     To get around this problem, the President claims he is acting under a different section of the Stafford Act that allows the President to “provide financial assistance under this section to an individual or household …  to address personal property, transportation, and other necessary expenses or serious needs resulting from the major disaster.”  If this provision existed in isolation, one might try to stretch it to allow unemployment benefits granted without specifying the “necessary expenses” being reimbursed.  But as Congress has provided clear instructions for how the Disaster Relief Fund may be used for unemployment benefits, the President’s action effectively reads those conditions out of the statute. 

     More broadly, this action is deeply disrespectful both of Congress’s power of the purse and that of state legislatures.  In a single stroke, he undermines both the separation of powers and federalism.  Members of Congress from both parties long have had reservations about granting the President large “slush funds”.  Weaponizing the Disaster Relief Fund in a political struggle with Congress all but assures that similar funds will not be appropriated in the future – with the result of slower disaster responses and more unnecessary hardship.  And if, as seems likely, few “deficit hawks” and “constitutionalists” in Congress object to the President seizing the power of the purse in this manner, we will be even farther from being able to set fiscal procedures for the broader national interest.


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