State and local governments around the nation are being hit hard by skyrocketing expenses and plummeting tax revenues as a result of the coronavirus pandemic and are in desperate need of billions of dollars in increased federal assistance.
Democrats and Republicans in the House and Senate, along with President Trump, should come to a quick agreement to provide this aid, or state and local governments will be forced to make massive budget cuts – including to vital programs – and lay off employees. Unlike the federal government, most state and local governments are required to balance their budgets.
For example, the city of Long Beach on Long Island near New York City has already announced 124 layoffs to its relatively small workforce. Ohio’s governor is bracing the state for budget cuts of up to 20 percent. Virginia, which expects to lose $2 billion in revenue this year, is considering rescinding pay raises it just granted to teachers.
I was a member of the New York state Legislature when we were devastated after the Sept. 11, 2001, terrorist attacks and I served as county executive in Suffolk County near New York City when the Great Recession hit in 2008. In both instances, massive amounts of revenue fell off the cliff suddenly and unexpectedly, just as is happening today.
I’m a fiscal hawk and don’t believe the federal government should serve as an ATM for states and localities – available to supply cash whenever the need arises, for whatever reason. I firmly believe that state and local governments don’t deserve unconditional bailouts when their fiscal problems are caused by their own mismanagement or by spending beyond their means.
For example, irresponsible fiscal policies embraced by the governments of New York City in the 1970s – and more recently by Detroit and Puerto Rico – brought them all to the brink of financial collapse. It’s perfectly fair for the federal government in such cases to demand draconian spending reforms – including a rewriting of municipal contracts and pension plans – in exchange for providing emergency financial aid to keep these governments afloat.
But the budgetary devastation that state and local government are now facing wasn’t caused by anything government officials did wrong. And unfortunately, government cash shortfalls will only get worse as long most Americans are being told to shelter in place at our homes to avoid spreading the coronavirus.
Faced with growing numbers of hospitalizations and deaths caused by the coronavirus, America’s governors, mayors and county executives have had no choice but to shut down their economies to save lives. But this necessary action has caused grave economic pain.
State and local government budgets are being devastated in at least three major ways.
Government spending is soaring
State and local governments are spending much more to fund Medicaid, unemployment insurance payments and other public assistance programs, because millions of Americans have lost their jobs due to business closures.
Many governments are also spending money to buy personal protective equipment for health care professionals and emergency supplies like ventilators for hospitals.
For example, while Nevada saw an average of approximately 200 daily social services assistance applications in February, by March that number spiked to 2,000. Meanwhile, Vermont experienced a 46 percent increase in Medicaid applications in March compared to the same month last year.
California has had approximately 1 million unemployment applications filed since March 13. New Jersey saw 200,000 unemployment claims since March compared to 7,000 the same time last year. Utah has experienced a 46 percent increase in Medicaid applications due to job losses.
Tax collections are falling
Laid-off and fired workers are not paying taxes on wages they are no longer collecting, shuttered businesses are not paying sales taxes on sales they are no longer making, and other tax collections generated by economic activity are down as well.
In an article published Thursday in Governing magazine, finance columnist Girard Miller writes that state and local government revenues from income and sales taxes totaled about $1 trillion last year. He estimates that the tax collections will drop by $100 billion to $250 billion this year, depending on how long most businesses remain closed.
In New York – the state with by far the most coronaviruses infections and deaths – state Budget Director Robert Mujica told The Wall Street Journal this week that state revenue would drop by $9 billion to $15 billion from projections made before the coronavirus pandemic hit.
In another example, the state of Nevada gets about 38 percent of its general fund revenues through a tax on tourism. With casinos now closed in the gambling capital, tourism and sales taxes are down dramatically.
And don’t count on property taxes to keep local governments afloat, since unemployed homeowners are far less likely to pay their taxes on time. After the Great Recession of 2008, 34 states recorded a marked decline in property tax collections.
Government pension funds have lost massive amounts of money
Some states and localities might have to dig into general revenues to supplement their pension funds because of stock market losses.
In New York, for example, the state and local governments are required to contribute a pension fund for their retired employees on a regular basis to keep it solvent. The fund depends primarily on its investment growth. When the stock market loses as much as 50 percent of its value – as it did after the 2008 crash – the state comptroller still demands that the state and local governments make up that loss.
In the current coronavirus-sparked economic crisis, California has seen a $69 billion drop in its pension fund due to market volatility.
Where do we go from here?
Many of us have been saying for years that the federal government spends too much and borrows too much year after year under both Republican and Democratic presidents, regardless of which party controls majorities in the House and Senate.
Our concern about overspending is valid in ordinary times, but we are not living through ordinary times now. There has never been a time in American history where government officials have ordered businesses around the country to close and told us all to stay at home and not venture out except for food and other essential purchases, or to perform essential jobs.
So now is not the time for federal officials to suddenly get religion on the need for balancing budgets. They should use their borrowing power to rescue state and local governments in this unprecedented national emergency.
When the coronavirus crisis subsides, it will be high time that the feds look in the mirror and start controlling their annual discretionary spending. That’s why we need a balanced budget amendment to the Constitution for the federal government. But such an amendment should have a safety valve for emergencies such as a war, a major recession and a pandemic.
Right now our economic house is on fire. And in circumstances like this, we have to put the fire out and not worry about the water bill. Lawmakers and President Trump need to put aside partisan differences and give state and local governments emergency aid NOW.