Read on Twitter
Today'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
How bad is it?
Half answer: REALLY BAD!
Full answer: REALLY COMPLICATED! You see...
1/ https://twitter.com/mikemadowitz/status/1293568387826831362
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's for tomorrow.
Today we're going to talk about states, because let's start where the data exists.
Here's @CenterOnBudget's take
2/ https://www.cbpp.org/research/state-budget-and-tax/states-continue-to-face-large-shortfalls-due-to-covid-19-effects
50 States need help
90,126 Local governments probably need a lot of help, but that's for tomorrow.
Today we're going to talk about states, because let's start where the data exists.
Here's @CenterOnBudget's take
2/ https://www.cbpp.org/research/state-budget-and-tax/states-continue-to-face-large-shortfalls-due-to-covid-19-effects
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/
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/
Many of the largest balances are in oil states. These are basically sovereign wealth funds & good policy.
For the rest of states...
rainy day funds are stupid
Please @ me with your takes about why taxing too much & spending too little is good if you disagree
4/
For the rest of states...
rainy day funds are stupid 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.
Shoutout to NJ for taking the advice of Ben Bernanke and ignoring theirs rn.
5/
Shoutout to NJ for taking the advice of Ben Bernanke and ignoring theirs rn.5/
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
7/ https://www.city-journal.org/federal-bailouts-for-states
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
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https://epi.org/204858
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