As the coronavirus pandemic continues to sweep across the country state and local governments across the US are bracing for severe economic impacts in 2021 that could force layoffs of government employees and swinging cuts to services.
The last few months have offered a more detailed picture of what the pandemic’s economic recession will look like for state and local governments. While some have been spared the doomsday scenarios predicted at the outset of the pandemic, others have been “savaged”. On the line are millions of jobs and drastic cuts to already struggling services in the midst of a national health and economic crisis that is only getting worse.
State and local governments set the budgets for local police and fire departments, public schools, health departments, road constructions and repair, public transportation and many other essential public services. How each state, city or town gets revenue varies widely, though it ultimately is some combination of income, sales and property taxes. No matter what the combination, when the economy is hurting – people are unemployed and are buying less and businesses are closing – state and local governments can take a huge hit.
“There are a lot of state and local governments who are seeing very, very strong impacts, and they’re going to have to make very sizable tax increases or spending cuts, especially at the local level,” said Dan White, director of government consulting and fiscal policy research with Moody’s Analytics, which has estimated that budget deficits will total about $80bn to $100bn even with federal aid from Congress’ stimulus packages.
The outlook for some state governments is not as bad as economists had feared at the beginning of the pandemic. States including California and Virginia have been spared from huge losses, partly because tax revenue in those states have not declined as much as initially expected as people went back to work and wealthier workers continued to work from home.
But other states are looking at huge deficits, some worth billions of dollars, particularly as the industries that they rely on for revenue, like tourism or energy, have declined because of the pandemic.
Read more of Lauren Aratani’s report here: US state and local governments brace for layoffs and cuts due to pandemic