Biden Administration Plans $500 Billion in SLED Aid
Published: February 09, 2021
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Over the weekend, chances significantly improved for major federal stimulus for the state, local, and education (SLED) market. The Biden administration along with Democrats in Congress advanced legislation that would provide more than $500 billion in aid to address SLED fiscal concerns. It appears that Democrats could fully enact this funding legislation without Republican support, so now is the time to see where these funds might flow and what opportunities they might generate.
- The SLED market is currently recovering quickly and federal fiscal aid would accelerate that recovery, potentially pushing bid activity back to or beyond 2019 peak levels.
- In terms of unrestricted fiscal aid, contractors should expect to see a generalized boost to the market in all areas since the funds will not be targeted to any business area.
- Education aid will likely be directed toward facilities (ventilation) and bus modifications to allow for resumption of on-premises learning nationwide this coming fall.
- Transit systems and airports will get another lifeline that should keep capital projects underway and O&M on schedule until COVID-19 immunity levels allow for ridership to return.
As stated in our B2G Market Advisor blog, Deltek expects the 2021 bid volume for the SLED market to rebound to 96% of its 2019 peak level. This is due to the fact that the fiscal impacts of COVID-19 response and related economic impacts were not as severe as expected in 2020. In fact, a Brookings analysis recently found that job cuts (layoffs and furloughs) in the SLED sector actually outpaced revenue declines and that federal aid to SLED entities to this point has exceeded revenue shortfalls by $50 billion. So, this leaves us to examine to what degree the SLED sector “needs” the aid, in what areas, and what the most likely uses of such aid would be.
$350 billion in generalized (or unrestricted) aid
Since the middle of 2020, the idea of generalized aid for states and localities has been hotly debated. The most common justification for the funding is to spur SLED rehiring of workers who have been laid off or furloughed. During the economic shutdown that was imposed to contain COVID-19, the SLED sector shed more workers than in the Great Recession of 2008-10. According to U.S. Bureau of Labor Statistics (BLS) data as of November 2020, the “State government education” category (mostly higher education) had reduced its workforce by 340,300 workers. “Local government education” (mostly K-12) had reduced its workforce by 666,200. “Local government” (other than education) was down 320,400 and “State government” (other than education) was down 15,200. Given that many of these workers are in support roles (e.g., custodial, maintenance, landscaping, housing, dining, security, transit) that will not be needed until on-premises activities resume, a large portion of this aid could be used for backstopping the compensation of those idled workers still receiving pay and/or benefits, freeing up funds for use in other areas.
Also, a unique trend for the SLED sector during this recession has been the use of general bond funding for (according to a Pew report):
…direct deficit refinancing, where the money from bonds or loans is used to replace money that would ordinarily have been collected from taxes to fund regular, ongoing government programs. There was also evidence of what we’d call indirect deficit refinancing, such as using money from bonds to pay for projects that previously were paid for with cash.
While it is impossible to determine exactly how much borrowing occurred, an analysis by the source cited above points toward at least one quarter of all issuances examined involved deficit financing. Therefore, it is likely that SLED governments will use some of the unrestricted aid to pay off some of these debts, which would free up payment obligations for use in other areas.
$170 billion for K-12 and higher education
Education has received the largest portion of dedicated SLED funding during the previous rounds of aid. Early indications are that the next round of aid will be focused on returning schools to on-premises learning. It is also likely that a significant portion could be used for backstopping the compensation of idled workers, freeing up funds for use in other areas. However, one key consideration that has drawn significant attention and was mentioned by President Biden in a recent interview is the upgrading of ventilation in educational facilities. Also, of concern would be ventilation and other precautions on K-12 and campus buses.
$20 billion national vaccination program
Among the ideas floated for this funding are community vaccination centers, mobile centers, and reimbursement of costs for using the National Guard for vaccinations. Previous rounds of federal vaccination aid have taken some of the cost burden off the shoulders of SLED governments; however, if vaccines are to reach saturation levels of distribution, the Biden administration will need to flood all channels with the necessary resources. This funding will significantly boost SLED capacity in this area.
$28 billion for transit and airports
With ridership drastically reduced, $20 billion in aid is anticipated for transit systems and $8 billion for airports to keep systems running and facilities in order until ridership recovers.
It is likely that education, vaccination, and transportation related funds will be distributed using previously established formulas from the CARES Act. The flexible aid is new, and it is likely that allocation will be along the lines of what was proposed in the House Democrats’ HEROES Act late last year. In that case, the District of Columbia was to be treated like a state and all state funds were to be allocated based on “a state’s share of unemployed workers.” City and county funding was to be “evenly divided between municipalities and counties.” Municipal funding was divided between cities with populations of at least 50,000 (roughly two-thirds of funding) and cities with populations under that figure (roughly one-third of funding). County funding was to be allocated based on population.