As Senate Republicans slowly work towards providing economic stimulus and spending to help offset the Covid-19 recession and the new surge of the virus, aid to state and local governments remains a stumbling block. But in spite of what some politicians seem to believe, both conservative red and liberal blue states need help. The sooner this is depoliticized, the better off the country and the economy will be.
Yes, many blue states are in budget trouble. But so are red states. Looking at estimated revenue shortfalls for fiscal year 2021, you see New York (-15%), California (17-21%), Nevada (-15%), and Hawaii(-23%). But keep looking, and you’ll see red states like Oklahoma (-16%), Texas (-15%), Alaska (-15%), and Wyoming (-21%).
The economy and recession—not alleged one-party mismanagement—is what’s driving these shortfalls. Hawaii and Nevada, and to a lesser extent New York and California, rely on tourism and hospitality, industries that have taken some of the biggest hits from Covid. And the red states listed above depend on oil and gas revenues, which have cratered from the recession and reduced demand.
The idea that state and city aid would be a “blue state bailout” goes back to Senate Majority Leader Mitch McConnell (R-KY) in the spring. The theme was picked up by President Trump who wrongly claimed in May that “all the states that need help—they’re run by Democrats in every case.” (Of course, the President isn’t always known for letting facts get in the way of political talking points.)
But all states are in trouble. States and cities have lost 1.3 million jobs since the start of the pandemic. The New York Times
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Without budget aid, state and cities will continue laying workers off, cutting contracts to vendors (including many small businesses), and cutting essential services. Economist Elise Gould of the Economic Policy Institute notes that in November, “public-sector employment continued to decline for the third month in a row.” That’s not only bad for those workers and for public services. It’s bad for the economy, and all of us hoping for an economic recovery.
State and local jobs and spending are a big part of the economy—“13% of total U.S. employment” in early 2020, and “approximately 15% of U.S. gross domestic product.” Education workers are being hit especially hard, since that’s where the highest percentage of state and local spending goes—about one-third of the total.
Cuts there not only hurt the economy now, disrupting households and making it harder for women to stay in the labor force (as well as losing their jobs in education, a highly genderized industry—in November, women were 77.2% of all workers in education and health services, compared with 13.3% in construction and 49.8% overall.)
There is some modest movement in Washington on state and local aid. A bipartisan group of Senators recently proposed a $908 billion relief package, including $160 billion for state and local government aid. That’s a long way from the over $1 trillion in May’s House-passed HEROES Act, but more than the zero that Senator McConnell has been offering.
Democrats have moved reluctantly toward the bipartisan Senate bill, with some hoping they can revisit spending once Joe Biden takes office in January. Things could be even more urgent then, as public health officials fear a “dark and deadly winter” from increased Covid-19 cases driven by family gatherings and travel during the Thanksgiving and Christmas holidays
But for now, states and localities are stuck. They can’t run deficits like the federal government can, although without federal aid, they may need to get creative. Economist Tim Bartik, one of the nation’s top experts on state and local economic development, recently tweeted that “if new Fed stimulus does not occur, Michigan state government needs to figure out how to evade balanced budget requirements” so the state can “avoid long-term economic damage.”
Experts like Bartik don’t make such statements lightly. It indicates just how serious and dangerous the state and local budget problem is, and how much worse it might become.
It remains a mystery why Senate Republicans are so fixated on blocking this aid, but they are. Let’s hope at least something gets passed immediately, and that Senator McConnell will listen to the governors and mayors—from red and blue places alike—calling for assistance that only the federal government can provide