Read on Twitter
Today& #39;s thread on state & local budget shortfalls:
How bad is it?
Half answer: REALLY BAD!
Full answer: REALLY COMPLICATED! You see...
1/ https://twitter.com/mikemadowitz/status/1293568387826831362">https://twitter.com/mikemadow...
How bad is it?
Half answer: REALLY BAD!
Full answer: REALLY COMPLICATED! You see...
1/ https://twitter.com/mikemadowitz/status/1293568387826831362">https://twitter.com/mikemadow...
Interlude:
Folks to follow (who should tag in others)
@lucydadayan
@TaxesTwoStep
@TimBartik
@jeffreypclemens
@KateDavidson
@Brendan_Duke
@NickCBPP
@leachma2
@byHeatherLong
@MichaelSLinden
@gordontrac
@stanveuger
@ryan_zamarripa
1a/
Folks to follow (who should tag in others)
@lucydadayan
@TaxesTwoStep
@TimBartik
@jeffreypclemens
@KateDavidson
@Brendan_Duke
@NickCBPP
@leachma2
@byHeatherLong
@MichaelSLinden
@gordontrac
@stanveuger
@ryan_zamarripa
1a/
Key distinction:
50 States need help
90,126 Local governments probably need a lot of help, but that& #39;s for tomorrow.
Today we& #39;re going to talk about states, because let& #39;s start where the data exists.
Here& #39;s @CenterOnBudget& #39;s take
2/ https://www.cbpp.org/research/state-budget-and-tax/states-continue-to-face-large-shortfalls-due-to-covid-19-effects">https://www.cbpp.org/research/...
50 States need help
90,126 Local governments probably need a lot of help, but that& #39;s for tomorrow.
Today we& #39;re going to talk about states, because let& #39;s start where the data exists.
Here& #39;s @CenterOnBudget& #39;s take
2/ https://www.cbpp.org/research/state-budget-and-tax/states-continue-to-face-large-shortfalls-due-to-covid-19-effects">https://www.cbpp.org/research/...
There are other good efforts on this, & the spreads are huge.
A big question is what role should state rainy day funds play in this?
The challenge here is these funds are very different animals in each state
3/
https://taxfoundation.org/state-rainy-day-funds-covid-19/">https://taxfoundation.org/state-rai...
A big question is what role should state rainy day funds play in this?
The challenge here is these funds are very different animals in each state
3/
https://taxfoundation.org/state-rainy-day-funds-covid-19/">https://taxfoundation.org/state-rai...
Many of the largest balances are in oil states. These are basically sovereign wealth funds & good policy.
For the rest of states...
https://abs.twimg.com/emoji/v2/... draggable="false" alt="🔥" title="Feuer" aria-label="Emoji: Feuer">rainy day funds are stupid https://abs.twimg.com/emoji/v2/... draggable="false" alt="🔥" title="Feuer" aria-label="Emoji: Feuer">
Please @ me with your takes about why taxing too much & spending too little is good if you disagree
4/
For the rest of states...
Please @ me with your takes about why taxing too much & spending too little is good if you disagree
4/
But the point of a rainy-day fund is to skirt budget crises due to (objectively stupid) balanced budget rules that exist in 47 states.
https://abs.twimg.com/emoji/v2/... draggable="false" alt="🚨" title="Polizeiautos mit drehendem Licht" aria-label="Emoji: Polizeiautos mit drehendem Licht">Shoutout to NJ for taking the advice of Ben Bernanke and ignoring theirs rn.https://abs.twimg.com/emoji/v2/... draggable="false" alt="🚨" title="Polizeiautos mit drehendem Licht" aria-label="Emoji: Polizeiautos mit drehendem Licht">
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So use rainy day funds? NO!
The federal government can backfill the $$ with 2 key added benefits
1) Borrowing @ negative real interest rates is good
2) Federal government is way less exposed to risk than any single state
also,
2a) Pandemic moral hazard is Ok
6/
The federal government can backfill the $$ with 2 key added benefits
1) Borrowing @ negative real interest rates is good
2) Federal government is way less exposed to risk than any single state
also,
2a) Pandemic moral hazard is Ok
6/
But if you want to minimize costs vs minimize CBO score, you could assume lots of rainy day fund spending and get a much smaller number, as @Brian_Riedl argues for in this piece.
7/ https://www.city-journal.org/federal-bailouts-for-states">https://www.city-journal.org/federal-b...
7/ https://www.city-journal.org/federal-bailouts-for-states">https://www.city-journal.org/federal-b...
No matter where the money comes from, We have a very limited window to prevent state & local gov from becoming another 10 year drag on economy.
Moodys (w/ low estimates of revenue shortfalls) still predicts 3% GDP hit & 4 million jobs lost through next year
8/
Moodys (w/ low estimates of revenue shortfalls) still predicts 3% GDP hit & 4 million jobs lost through next year
8/
So, the argument is really what to do about a huge problem w/ bad data:
Both @jeffreypclemens & @TimBartik have done excellent work on this & note a much smaller package works if you use policy rules to extend aid.
9/
Both @jeffreypclemens & @TimBartik have done excellent work on this & note a much smaller package works if you use policy rules to extend aid.
9/
SO we need, *for states alone*, at least $300B ( @economics_ma Moodys)& probably something more like $555B ( @CenterOnBudget ).
Could get better, could get worse (a great reason to use policy triggers if u care about keeping package small).
So...
10/
Could get better, could get worse (a great reason to use policy triggers if u care about keeping package small).
So...
10/
Finally: A Good event from @EconomicPolicy Today w/ @gbenga_ajilore @joshbivens_DC @jasonfurman @Austan_Goolsbee @byHeatherLong & Glenn Hubbard @ 1PM est
https://epi.org/204858 ">https://epi.org/204858&qu...
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https://epi.org/204858 ">https://epi.org/204858&qu...
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