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U.S. states, cities in waiting game as talks on federal aid halted

CHICAGO, Oct 7 (Reuters) - U.S. state and city leaders are grappling with whether to delay tough budget decisions in the wake of President Donald Trump’s shutdown of negotiations on a comprehensive stimulus package ahead of the Nov. 3 election.

Democratic New York Governor Andrew Cuomo told reporters on Wednesday that he was holding off on actions to close a $14.5 billion budget deficit on his belief that Democrats will win the White House and control of the U.S. Senate and will pass federal aid.

“The only way to get close to closing that deficit within the state’s abilities, you would have to do a tax increase. You would have to cut expenses. And you would have to borrow,” Cuomo said. “This would do tremendous economic damage to the state.”

The economic fallout from the coronavirus pandemic punched big holes in state and local government budgets across the nation, leading to pleas for hundreds of billions of dollars in federal money to replace lost revenue and avoid draconian cuts to essential services.

Those hopes suffered a setback on Tuesday after Trump rejected a $2.2 trillion package approved by the U.S. House of Representatives last week. In a tweet, he claimed the funding was “to bail out poorly run, high crime, Democrat States, money that is in no way related to COVID-19.”

In Chicago, Democratic Mayor Lori Lightfoot said she is not waiting on Washington and is instead weighing “painful” options to address a $1.2 billion deficit in the fiscal 2021 budget she plans to unveil later this month.

“Blue states, red states, purple states - this is a bipartisan issue because it has bipartisan impact,” Lightfoot said at a news conference.

The U.S. Conference of Mayors said “failure to deliver badly needed fiscal assistance to cities of all shapes and sizes is going to amount to increased job losses, decreased public safety and a greatly impaired economic recovery.”

Tom Kozlik, head of municipal strategy and credit at Hilltop Securities in Dallas, said even if federal aid eventually materializes, “there’s going to be a situation most likely where (credit rating) downgrades outpace upgrades probably for years.”

Reporting by Karen Pierog in Chicago Additional reporting by Maria Caspani in New York Editing by Matthew Lewis

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