Empty wallet,” NoHoDemon

September 7, 2020; New York Times

In June, NPQ noted that states faced a likely $370 billion shortfall this fiscal year and that if federal aid was not forthcoming, severe cuts were likely. Given that state governments in a normal year have total revenues of $2.1 trillion, what states are facing is a 17.6 percent cut overall. When local governments are factored in, the revenue shortfall easily exceeds $500 billion.

Having state and local governments cut spending while the federal government is engaging in record spending is, NPQ noted, a “little like driving a car with one foot on the accelerator and the other on the brake”—and the results are not pretty.

Back in May, the US House of Representatives passed the HEROES Act, which would have provided a total of $915 billion for state and local governments (and tribal governments and territories). Had that bill (or some variant thereof) passed the Senate, today’s shortfalls could have been avoided.

Now the pain is everywhere to see:

  • At Kentucky Voices for Health, executive director Emily Beauregard notes that, “This pandemic has put an extraordinary strain on our state and local budgets along with the community health centers, rural health clinics, community mental health centers, local health departments and hospitals that serve every single one of us.”
  • The Minnesota Council of Nonprofits in its newsletter observes that a federal failure to act “means more kids going hungry and at risk of becoming homeless; threatens cuts to health care, education, and other urgently needed services; and means more layoffs of teachers and other state and local government workers.”
  • Tim Delaney, president of the National Council of Nonprofits, writes in The Hill that, “States have to receive around $500 billion to pay for immediate costs and avoid drastic spending cuts and difficult tax hikes. Counties estimate budget gaps of more than $200 billion as cities project revenue losses of over $250 billion through next year.”

And, as reporter Mary Williams Walsh details in the New York Times, the cuts are already becoming evident. Some examples:

  • Alaska has cut its support to public broadcasting.
  • In Maryland, the Baltimore Symphony Orchestra saw a state $1.6 million grant withdrawn.
  • New York City has cut a composting program that promised to keep tons of food waste out of landfills.
  • A number of states have frozen teacher pay at a time when teachers face unprecedented challenges with digital and hybrid learning.
  • An estimated 1.3 million state and local government employees have been laid off.

Mark Zandi, chief economist at Moody’s Analytics, notes things could get a lot worse. “People look to government as their backstop when things are completely falling apart….We run the risk of descending into a dark vicious cycle,” Zandi tells Walsh.

As Walsh explains, “State and local governments administer most of America’s programs for education, public safety, health care, and unemployment insurance. They also provide a wide variety of smaller services, such as outdoor recreational facilities or highway rest stops, that improve the quality of life. The costs of many of these programs have spiraled because of the pandemic, which has at the same time caused an economic slump that has driven down tax revenues.”

Governor Andrew Cuomo (D-NY), Walsh adds, “has warned that without further relief New York will cut $8.2 billion in grants to local governments.” The cuts, Cuomo says, would hit “nearly every activity funded by state government,” including special education, pediatric health care, substance abuse programs, property-tax relief, and mass transit.

Walsh adds that, “Without further federal aid, some of the biggest cuts will be to education and health care. California says it will send its school districts $12.5 billion in IOUs if Washington doesn’t step in, and it will be on the schools to figure out how to fund themselves in the meantime. Preschool programs are being cut in many states; so are free-tuition college programs.”

Even conservatives such as Glenn Hubbard, who was chairman of the Council of Economic Advisers under President George W. Bush, have argued that state cash needs were becoming urgent. Arguments about “state profligacy,” Hubbard adds, are beside the point. At an Economic Policy Institute online seminar held last month, Hubbard observed that “if an overweight person comes to the ER with a heart attack, you treat the heart attack before you lecture him or her about weight.”—Steve Dubb