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. @JECDems has a new brief on why it will be essential to provide massive aid to state & local governments, which are forced to spend billions leading the fight against #COVID19 while facing severe budgetary pressure.
Full brief here: https://bit.ly/StateandLocalAid
Full brief here: https://bit.ly/StateandLocalAid
If state & local governments lack the resources they need to adequately respond, it will be far more difficult to #FlattenTheCurve of new coronavirus cases and deaths. The fate of every state hangs on the success of every other, particularly those hardest hit.
Many are already feeling the budget squeeze as a result of fighting the pandemic. Medical needs alone are overwhelming and those needs will explode as the number of coronavirus cases requiring medical care grows exponentially in coming weeks. https://www.usatoday.com/story/news/health/2020/03/02/coronavirus-response-depleted-public-health-departments-scramble-respond/4868693002/
Further, states are likely to face historic increases in Medicaid costs because recipients need expensive coronavirus care. Moreover, skyrocketing unemployment will force workers off private insurance and many will apply for Medicaid benefits.
In previous recessions, the increase in Medicaid costs was so severe that states reduced Medicaid eligibility, which could be a tragic error during the #COVID19 pandemic as it could bankrupt families and health providers. https://www.cbpp.org/blog/medicaid-funding-boost-for-states-cant-wait
A key factor: As businesses are forced to shutter to prevent spread of #COVID19 and the economy slows, shrinking profits mean reduced tax revenue. States are seeing dramatic drops in sales tax, income tax and tourism revenue. https://www.wsj.com/articles/coronavirus-crisis-could-cut-new-york-state-revenue-by-up-to-15-billion-cuomo-aide-warns-11585056388
Example: Initial modeling by the Michigan Treasury and Budget Office suggests the state could lose $1 billion to $3 billion in anticipated revenue this year, and $1 billion to $4 billion in fiscal year 2021. https://www.bridgemi.com/michigan-government/michigan-axes-80m-pork-spending-shifts-spending-fight-coronavirus
States are in a serious bind, because with the exception of VT, they are required by their laws to balance their budgets. Unlike the federal government they cannot borrow funds to meet ongoing costs. https://www.brookings.edu/blog/up-front/2020/03/23/how-will-the-coronavirus-affect-state-and-local-government-budgets/
If the states choose to cut spending, it could lead to further economic disaster. Let’s look at history: when state and local governments slashed spending following the financial crisis, it dramatically slowed our recovery from the Great Recession.
Three things should be considered as the U.S. continues to deal with the #COVID19 outbreak:
First, states need help with the massive explosion of Medicaid costs due to the coronavirus. https://www.cbpp.org/research/economy/immediate-and-robust-policy-response-needed-in-face-of-grave-risks-to-the-economy
First, states need help with the massive explosion of Medicaid costs due to the coronavirus. https://www.cbpp.org/research/economy/immediate-and-robust-policy-response-needed-in-face-of-grave-risks-to-the-economy
Second, state and local governments will need more direct aid than the #CARESAct provides.
Current aid is widely seen as insufficient given the enormity of the potential fall in tax revenue. https://www.cbpp.org/press/statements/greenstein-relief-package-includes-important-aid-but-more-needed-to-meet-urgent
Current aid is widely seen as insufficient given the enormity of the potential fall in tax revenue. https://www.cbpp.org/press/statements/greenstein-relief-package-includes-important-aid-but-more-needed-to-meet-urgent
Third, local and state governments face unpredictable borrowing costs and steps must be taken to prevent borrowing costs from exploding. One option: Lawmakers should pass legislation that would allow the Federal Reserve to purchase long-term state and local debt.
Failure to provide adequate aid to state & local governments would be a dramatic error, hampering the public health responses, forcing states to divest from productivity-enhancing investments, and slowing the recovery of the labor market.
Full report: https://bit.ly/StateandLocalAid
Full report: https://bit.ly/StateandLocalAid
