As the coronavirus pandemic continues to sweep across the country state and local governments across the US are bracing for severe economic impacts in 2021 that could force layoffs of government employees and swingeing cuts to services.
The last few months have offered a more detailed picture of what the pandemic’s economic recession will look like for state and local governments. While some have been spared the doomsday scenarios predicted at the outset of the pandemic, others have been “savaged”. On the line are millions of jobs and drastic cuts to already struggling services in the midst of a national health and economic crisis that is only getting worse.
State and local governments set the budgets for local police and fire departments, public schools, health departments, road constructions and repair, public transportation and many other essential public services. How each state, city or town gets revenue varies widely, though it ultimately is some combination of income, sales and property taxes. No matter what the combination, when the economy is hurting – people are unemployed and are buying less and businesses are closing – state and local governments can take a huge hit.
“There are a lot of state and local governments who are seeing very, very strong impacts, and they’re going to have to make very sizable tax increases or spending cuts, especially at the local level,” said Dan White, director of government consulting and fiscal policy research with Moody’s Analytics, which has estimated that budget deficits will total about $80bn to $100bn even with federal aid from Congress’s stimulus packages.
The outlook for some state governments is not as bad as economists had feared at the beginning of the pandemic. States including California and Virginia have been spared from huge losses, partly because tax revenue in those states has not declined as much as initially expected as people went back to work and wealthier workers continued to work from home.
But other states are looking at huge deficits, some worth billions of dollars, particularly as the industries that they rely on for revenue, like tourism or energy, have declined because of the pandemic.
Florida, which relies heavily on the travel industry, has estimated a budget deficit of $2.7bn, with the state’s governor slashing $1bn of spending when setting the current budget over the summer. The governor of Hawaii, which relies on tourism for state revenue, said that $600m from the state’s budget will have to be cut and announced plans to have furlough days for more than 10,000 state workers.
State leaders in these hard-hit states have suggested that spending has only increased during the pandemic as their residents have turned to the government for assistance during hard times.
“Demand for service is the highest it’s been, and the reality is we just don’t have the revenues to sustain government as it existed,” said David Ige, Hawaii’s governor, in December.
State and local governments, many anticipating the worst, have already taken steps to slim their budgets, namely by instituting layoffs, furloughs and hiring freezes of government workers. About 1.3m jobs in state and local governments have been cut since March, and it is unclear when and if those jobs will be coming back. State and local government employment has not been this low since 2001.
Federal relief for state and local governments has been concentrated in what was allocated in the Cares Act: $110bn in aid to states and $28bn to local governments. Each state received at minimum $1.25bn.
State and local leaders said the money was not enough and asked for as much as $500bn. But aid to state and local government proved to be a contentious point between Democrats and Republicans. The $900bn stimulus bill passed in December included aid for specific sectors, including public education and transportation, but a direct line of cash for state and local governments was ultimately left out of the bill.
While state and local leaders denounced the exclusion of aid in the funding bill, some leaders breathed a sigh of relief when Democrats won the two Senate run-off races in Georgia last week.
“Washington has savaged us for four years,” New York’s governor, Andrew Cuomo, who is facing a $15bn budget shortfall this year, said during a press conference on the state’s upcoming budget on Monday. “We expect basic fairness from Washington, finally.”
Joe Biden has promised to help state and local governments, though he has not specified what kind of aid he has in mind.
“Even more teachers, firefighters, cops will lose their jobs unless the federal government steps up now,” the president-elect said in December.
While economists said state and local governments may not need $1tn in aid, direct relief could prevent cuts from governments who are anticipating the worst.
“The cutback at the state and local government level really delayed the recovery from the Great Recession. We don’t want that to happen again,” said Louise Sheiner, a senior fellow at the Brookings Institution and policy director for the Hutchins Center on Fiscal Monetary and Policy.
In a recent analysis, Sheiner found that states and local governments have been shedding jobs even when their budget shortfalls are not as bad as expected, probably, in part, because of over-caution in the budget process.
“In things like public education and other social services, we want that money to continue flowing,” Sheiner said, adding that aid would give states “assurances that the money will be there”.
This will prove particularly important for public education, which has received the brunt of state and local government layoffs during the pandemic. Employment is down in public education in nearly every state compared to 2019, according to an analysis from Pew Charitable Trusts.
Meanwhile, public schools will probably have to spend more money in repairing air ventilation systems, paying for personal protection equipment (PPE) and testing when reopening for students and, eventually, expanding instruction in attempt to make up for a year when many students are falling behind, said Rebecca Sibilia, a school funding expert who previously led the non-profit EdBuild.
Sibilia estimates public school funding is down on average between 5% and 10% across the country, with some states, including Nevada and New York, cutting even more. Congress has given just under $70bn to schools through its stimulus packages, but Sibilia said the aid may only barely cover cuts that have already been made.
“We have this triple squeeze of state resources that are declining, costs that many districts will need to incur in order to get ready to reopen and then the costs associated with learning loss,” Sibilia said. “We’re barely scratching the surface of likely replenishing cuts that have already been taken, so we have a lot more work to do.”