The coronavirus pandemic has hit state and local governments economically, cutting tax revenues by hundreds of billions of dollars. Devastating budget cuts are now looming, crippling public services and cutting the workforce well beyond the 1.3 million jobs lost in eight months.
Governors, mayors and district leaders asked for federal aid before the end of the year. Republicans in Congress despised this support, and Senate majority leader Mitch McConnell of Kentucky called it a “bailout for the blue state.”
However, it turns out that this budget crisis is color blind. Six of the seven states expected to see the biggest drop in sales over the next two years are red states, led by Republican governors and won by President Trump this year. This comes from a report by Moody’s Analytics.
Those at the front agree. “I don’t think it’s a red or blue state problem,” said Brian Sigritz, director of state finance studies for the National Association of State Budget Officers. Top National Governors Association officials – Andrew M. Cuomo of New York, a Democrat, and Asa Hutchinson of Arkansas, a Republican – issued a statement this fall: “This is a national problem and requires a bipartisan, national solution. ”
Efforts to forge a new stimulus package took off this week with a $ 900 billion proposal, offered by a bipartisan group of lawmakers and endorsed by Democratic leaders, that includes $ 160 billion for state, local and tribal governments. Such a sum would not close the growing budget gaps, but it would bring welcome relief. But the Republican leadership shows no sign of seeking state and local aid.
In reality, the level of financial hardship depends less on which party controls a state house or town hall than on the number of Covid-19 cases, the types of businesses that support a state’s economy, and its tax structure.
Wyoming, Alaska, and North Dakota, Republican-led states dependent on energy-related taxes, have been hit by the sharp drop in oil prices. Places like Florida and Nevada, where tourism is seeing huge growth in sales, are seeing sales decline of 10 percent or more, as is Louisiana, which relies on both tourism and energy.
Elsewhere, sharp declines in sales and income taxes, which average around two-thirds of a state’s tax revenue, according to the Pew Charitable Trusts, are forcing Republican and Democratic officials to consider firing police officers and vaccinating children to reduce and close libraries, parks and drug treatment centers.
Even the most optimistic assumptions about the course of the pandemic point to fiscal ramifications for states and local governments that would be “the worst since the Great Depression” and that would take years to excavate for Dan White, director of fiscal research at Moody’s Analytics.
State pressures reverberate in urban, suburban, and rural counties in almost every corner of the United States, and officials make cutting edge decisions.
In Casper, Wyo., Every week someone from the prosecution walks around the block to the Circuit Court building and picks up a large plastic trash bag full of discarded paper clips for reuse.
The short trip is just one way prosecutor Dan Itzen is cutting costs. He has also stopped prosecuting 17 types of offenses – including assault and battery, first time drunk driving, shoplifting, check fraud and property damage.
“There had to be something,” said Mr. Itzen, who handles about a third of Wyoming’s criminal cases and receives state funding. “If I lose staff, I won’t be able to pursue as many cases.”
In Kansas City, Missouri, with a community budget of $ 1.7 billion, the city council has asked each department to come up with a plan for cuts of more than 11 percent. That could mean firing 200 police officers from the 1,300-strong force and 180 firefighters and paramedics, said Dan Fowler, a member of the city council.
“This is one of the things that keeps me up at night,” said Fowler, pondering the impact on the city’s half a million residents. Such cuts could result in a police station or two closing down amid crime rates rising, he said.
Emergency response times are already slow, said Fowler. Although he lives near a hospital, he said, “If I have a heart attack, I just crawl over there.”
From collecting garbage to obtaining building permits, maintaining parks and repairing potholes: “Everything is slowing down because we don’t have the people to do it,” he said. A traffic study of a street in his district with a high accident fee has been postponed.
In New Orleans, Democratic city leaders are going through a similarly painful process, shrinking the general fund by $ 92 million to $ 634 million for the next fiscal year.
To avoid layoffs, the city is cutting senior wages by 10 percent and requiring most other employees, including police officers, firefighters, and emergency responders, 26 unpaid vacation days – one every two weeks – for the next year. The move amounts to a wage cut of 10 percent and is in addition to the six vacation days that were imposed on the city’s approximately 4,000 employees by the end of this year.
Economy & Economy
Apr. 11, 2020, 6:16 pm ET
On a given day, fewer people are available to drive buses, respond to emergency calls or pick up rubbish.
“We’re in the market,” said Gilbert Montaño, the city’s chief administrative officer. Each agency has made an average of 21 percent cut from what they were already expecting.
Like most cities and towns, New Orleans spends most of its budget on its employees, making it nearly impossible to cut expenses without reducing people’s hours.
State and local employees make up around 13 percent of the country’s workforce. For women and black workers in particular, the public sector has in the past offered more opportunities than the private sector for a stable income and reliable benefits.
“These are people who are doing important public services every day and risking their lives,” said Lee Saunders, president of the American Federation of State, County and Municipal Employees, “and now there is a good chance many will be affected.” with a pink slip. “
To date, an overwhelming majority of state and local job losses have been in education. Although many of the layoffs have been classified as temporary, educators and parents fear that they could become permanent. In a new survey of mayors, 45 percent said they expected “dramatic” cuts in their school budget.
Public schools are mostly dependent on property taxes. States often provide additional funding, but many have cut their education budgets.
Most states managed to limp into summer, a typical end point of the fiscal year. There had been strong growth prior to the March pandemic, and the $ 2.2 trillion CARES bill passed in the spring and passed by Congress in the spring kept many households afloat. In some places, the additional federal money could be used to cover some state and local expenses related to pandemic healthcare and education.
Both pillows fade. Fiscal 2020-21 will be played out in the shadow of the pandemic and a tumbling economy in most countries. And the federal emergency money for expanded unemployment benefits, which has helped families cover the cost of housing and food, expires in late December, adding to the demand for public services.
Federal Reserve chairman Jerome H. Powell and many economists have warned that cuts in state and local spending will continue to lead to a weak recovery, as it did after the Great Recession. According to the Bureau of Economic Analysis, part of the Department of Commerce, spending by state and local governments made up about 15 percent of the country’s economic activity.
While the federal government has budget deficits to cover regular and unexpected expenses, states generally cannot.
In Wyoming, Republican Governor Mark Gordon recognized the impact on the economy after announcing a new round of cuts for the coming fiscal year. He said 160 private sector jobs depended on 100 government employees who spend money on haircuts, kids’ sports and restaurants.
While facing one of the worst budget shocks, Wyoming also has one of the largest rainy days funds that states have built to aid the weather downturn after the last recession. Some states – including Louisiana, Nevada, New York, and Illinois – have little or nothing left in reserve.
Even so, the Wyoming governor has said he does not want to blow the state’s safety net as difficult times may lie ahead for years. The fund may also be needed to meet an additional $ 300 million deficit related to the state’s public schools. That is why Mr Gordon has proposed austerity programs that address child vaccination, substance abuse and mental health.
Meg Wiehe, deputy general manager of the Institute for Taxes and Economic Policy, said Wyoming has at least addressed the painful reality.
“The bigger cuts that are resonating with the people will come to a head early next year,” said Ms. Wiehe. “We’re staring at some deep and very devastating cuts.”