State and local governments are among the largest employers. They are among the largest purchasers. The effects of they’re programs and services can be felt down to the neighborhood.
When they hurt, everyone hurts. And they’re hurting now.
State and local governments are expected to lose collectively more than half a billion dollars through 2022. Congress should pass relief for them as part of the next COVID-19 response package — or risk setting off a chain of events that could worsen and lengthen the recession.
The coronavirus crisis has devastated the sales and income tax receipts and fees that fund state and local governments across the country.
In Maine, officials forecast a shortfall of more than $520 million in the current fiscal year ending June 30, 2021 — out of a two-year budget that’s just shy of $8 billion. The shortfall is expected to reach a total of $1.3 billion over the next three years.
We’re not the only state in trouble. According to Moody’s Analytics, the states have a collective shortfall of $312 billion through the summer of 2022, with local governments combined nearly another $200 billion in the hole.
Gov. Janet Mills has already asked department and agency heads to cut spending by 10% this year. School aid, health care funding and transportation projects could be on the block.
Mills has also asked for plans for reducing spending in the next two-year budget by Oct. 19, hoping that by then Congress will have provided some help.
After a recess, the Senate returned to work this week. But confidence that Congress will reach an agreement on what to do is low. Republican Majority Leader Mitch McConnell said Tuesday that the Senate would vote soon on a relief package reportedly worth a total of $500 billion.
House Democrats passed the $3.4 trillion HEROES Act on May 15 and have watched the Senate struggle to coalesce over their own package. Democratic attempts at a compromise before the recent break were rebuffed.
The HEROES Act contains roughly $900 billion for state and local governments. The bipartisan National Governors Association has asked Congress for at least $500 billion.
Senate Republicans have so far offered nothing.
The fallout from withholding relief would be widely felt, as governments cut back programs and services, and the jobs that support them.
Cuts to government spending hurt the private-sector vendors who were counting on it, and the employees who depend on it for their jobs. Layoffs in the public sector, a provider of solid middle-income employment in every corner of the country, would slow consumer demand just when the economy needs it propped up.
McConnell has argued that relief would only bail out state governments that have made poor financial decisions.
But state and local governments did not create the problems they are facing today. The problems are simply the result of the loss of revenue that was reliable and expected — until the country was blindsided by a massive crisis.
Congress’ choice now is between easing the crisis by providing relief, or withholding the relief and waiting for the dominoes to start falling.
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