Lawmakers working to strike deal on 5th phase of relief.

By Tom Kozlik
Head of Municipal Strategy and Credit
Public Finance
HilltopSecurities

Right now, all eyes are on Congress. The House and the Senate both returned to Washington D.C. this week to work on a fifth phase of COVID-19 relief, or what we’re calling COVID 5.

Key Concerns for Next Stimulus Package
A key element for the economy is whether the previously enacted increase in unemployment benefits is going to continue past the July 31 expiration date. Meanwhile, state and local governments are waiting in anticipation to see whether Congress sends any meaningful aid their way. The CARES Act only included about $150 billion for state and local governments which was limited to expenses specific to COVID-19. It’s estimated that state and local governments now have budget or revenue shortfalls amounting to approximately $1 trillion and have laid off about $1.5 billion workers. In fact, in the month of April alone, state and local governments laid off more workers than they did in the great recession.

Where Are We Now?
In May, the House passed the $3 trillion HEROES Act, which included about $1 trillion for state and local governments. This week, Republicans in Congress and the White House were streamlining and prioritizing their agenda, and we expect to see a bill from Senate Republicans soon.

What Will the Republican Bill Include?
Right now, Senate Republicans are still trying to determine how to handle the expiration of increased unemployment benefits. And on the municipal side, we don’t expect that the proposed bill is going to include aid for states. However, we do expect that there could be an expansion of the $150 billion earmarked for states in the CARES Act. For example, states may be able to use the expansion to help with their budgets, and it wouldn’t be limited to coronavirus-related expenses. We’re also hearing that the Senate Republican’s bill may earmark $100 billion for schools. We’re not certain whether these funds hinge on schools returning to in-class instruction in the fall.

Upcoming Negotiations
After the Republicans release their bill, negotiations will be in full swing across the aisle. We’re not certain how long this will take. However, right now the Senate is scheduled to leave Washington D.C. on Friday, August 7, 2020. It’s difficult to predict how these negotiations will proceed. But we will monitor coverage to provide you with an idea of what we think the final stimulus package will include.

Final Bill Estimates
We expect that the bill’s final amount will be a compromise between both parties. The Democrats’ proposed bill amounts to $3 trillion and we expect the Republican bill to be a little over $1 trillion. Therefore, we believe the final bill will range between $1-$2 trillion. In this bill, we expect Congress to earmark somewhere between $500 billion and $1 trillion for state and local governments—although with every passing day we feel the total could be closer to the lower end of that range. However, we do think that funds at the lower end of that range would be meaningful.

Learn More About Congress’ Bill
For more in-depth analysis on Congress’ upcoming stimulus package, visit our Municipal Commentary page. If you have a question or comment, feel free to contact me at tom.kozlik@hilltopsecurities.com.

Hilltop Securities, Inc. (HTS) is a registered broker-dealer, registered investment adviser and municipal advisor firm that does not provide tax or legal advice. This information is intended for educational and informational purposes only and does not constitute legal or investment advice, nor is it an offer or a solicitation of an offer to buy or sell any investment or other specific product or service. HTS is a wholly owned subsidiary of Hilltop Holdings, Inc. (NYSE: HTH) located at 1201 Elm Street, Suite 3500, Dallas, Texas 75270, (214) 859-1800. Member: NYSE/FINRA/SIPC