That’s why congressional Democrats are right to be pressing for additional aid to states and localities in the next round of coronavirus legislation. While facing these daunting challenges, governors and mayors are threatened by massive revenue shortfalls. With nonessential businesses closed and unemployment skyrocketing, states are taking huge hits to revenue from sales and income taxes, which make up about 40 percent of state revenue. Although the Cares Act passed in March allotted $150 billion in relief funds to state and local governments, those funds were restricted to pandemic-related expenses. That leaves states still scrambling to plug their revenue shortfalls.
As tax revenue evaporates, state and local governments are furloughing thousands of workers and eyeing midyear budget cuts. Furloughing some public employees — such as those who staff large public venues or operate temporarily closed parks — is sensible and relatively low impact in this period, though painful for those workers. But cuts elsewhere could be devastating.
State agencies are being overwhelmed by demand as economic hardship sends millions toward benefits such as unemployment insurance and food assistance. Social services across the country support vulnerable clients who depend on regular visits — families who may run out of food and diapers, disabled adults who need in-person assistance to meet basic needs, and many more. And along with all the new efforts that pandemic response requires, state and local governments must still run key services on which Americans rely — emergency response, sanitation and election administration, to name a few. Local leaders are trying desperately to avoid cuts to critical services, but without federal assistance, it may be impossible.
An economic crisis for states will compound the larger plunge in the U.S. economy. State and local governments contribute a major share of economic output, spending $3.7 trillion (or 19 percent of gross domestic product) in 2017.
These are the facts that should be top of mind as Congress reconvenes beginning this week. Of course, major funding should have guardrails — the $500 billion requested by the nation’s governors is no small sum. But, rather than a punitive approach that emphasizes harsh consequences for mistakes, the federal government should implement structures to help states and localities spend the money appropriately, like a federal coordinator who can provide real-time support and guidance to local decision-makers.
As state and local governments prepare to protect our health and welfare in this unprecedented crisis, why would we want them to fight for us with one hand tied behind their backs? With generous, flexible funding, Congress can set them — and all Americans — up for success.