State And Local Governments Are In Crisis. Will The Election Change Anything?
States are facing their worst budget shortfalls since the Great Depression, and the situation isn’t likely to improve anytime soon as coronavirus cases surge across the country and federal relief legislation is delayed.
State and local budgets have taken a major hit during the pandemic thanks to huge losses in tax revenue, tourism revenue, and ballooning healthcare and public service costs.
Democrats led by House Speaker Nancy Pelosi (D-Calif.) have maintained that relief money is necessary to stave off massive government layoffs, support schools, and allow states to continue providing essential services related to the virus, originally proposing some $875 billion for this issue in the Heroes Act in May.
Senate Republicans have been adamantly opposed to sending additional aid to municipalities, and President Trump has characterized that money as a “bailout” for what he says are poorly managed Democratic states and cities.
Former vice president and Democratic presidential nominee Joe Biden has criticized GOP relief proposals for not including enough state aid, and on his campaign website vows to take “immediate measures” to send more relief to local governments.
$450 billion. That’s the cumulative “fiscal shock” state and local governments are facing as a result of the coronavirus crisis, according to Moody’s Analytics.
“There is no real model for a crisis like this,” New Jersey Treasurer Elizabeth Maher Muoio told the Wall Street Journal. “It’s going to be tough for the next couple years.”
Under the $2.2 trillion CARES Act passed in March, state and local governments received $150 billion in federal aid. At the time, many state officials including New York Gov. Andrew Cuomo criticized the bill because they said that amount wouldn’t be nearly enough to cover their projected losses. The question of more federal aid for states and municipalities to help offset those losses—especially as the pandemic has worsened—has been front and center in negotiations surrounding the next coronavirus aid bill for months, but there’s no resolution in sight.
States that are more reliant on the oil industry, which has taken a major hit in the U.S. thanks to plummeting demand for fuel during the pandemic, are likely to experience additional losses because of how the price of the commodity has fallen, according to the Center on Budget and Policy Priorities. New Mexico, for instance, is facing revenue losses of $2 billion.
States often use “rainy day funds” to plug holes in their budgets during downturns, and before the pandemic states had amassed what the Pew Charitable Trusts called the “largest financial cushion” in 20 years—including $75.2 billion in rainy day funds. Now, states are drawing on those funds to help them offset Covid-19 related losses.
What To Watch For
Both the White House and top Democrats have maintained that they will continue to work towards a comprehensive stimulus bill after the election, but it’s not clear what that future bill will look like or whether it will pass before the end of the year in a lame-duck Congress. That’s because the Senate will still be controlled by Republicans, who have already blocked Democratic efforts to send more aid to states, in November and December regardless of the outcome of the election.
U.S. States Face Biggest Cash Crisis Since the Great Depression (Wall Street Journal)
How much is Covid-19 hurting state and local revenues? (Brookings)
8 Numbers That Sum Up The Financial Crisis Facing State And Local Governments (Forbes)
Business Leaders Urge Congress To Send $1 Trillion In Relief Funding To States And Local Governments (Forbes)