Don't tell us there's no money for states
Local governments need $555B, but businesses have already gotten $1.9T
Backed by Republican leaders in Congress and members of his cabinet, President Trump signs the CARES Act into law in late March, providing big benefits to big business. (White House)
By Ameya Pawar and Ted Cox
State and local governments need an estimated $555 billion to offset lost tax revenue in the coronavirus pandemic through 2022, according to a prominent government watchdog.
The Center on Budget and Policy Priorities reported this week that state and local governments would need $555 billion through 2022 to make up the shortfall. Earlier this month, the center pointed out lost revenues were steeper than in the Great Recession of a decade ago, although states lost an estimated $690 billion over five years from 2009 through 2013, compared to the $555 billion projected over three years from the COVID-19 economic collapse. In any case, both dwarfed the $335 billion in lost tax revenue in the four years following the recession brought on by the Sept. 11, 2001, terrorism attacks.
Realizing they were facing diminished revenues from efforts to mitigate the spread of COVID-19, many states made immediate cuts, much of them in the field of education. The center reported: “The initial state and local cuts enacted in spring and early summer caused sizable harm through layoffs, furloughs, and cuts to vital public services.”
Governments have learned before, going back to the Great Depression and the New Deal, that an economic crisis is no time for austerity. Yet some states forced to balance their budgets came to the conclusion they had no other choice, worsening the COVID-19 recession and the national unemployment rate. As the center put it: “In April and May alone, states and localities furloughed or laid off 1.5 million workers, about twice as many as in the entire aftermath of the Great Recession. Nearly half of the April layoffs were school employees.” It added that “unless federal policymakers provide a new round of flexible fiscal aid, the harm will only worsen.”
Gov. Pritzker has resisted those cuts, insisting that government services are needed more than even in a public health crisis, and with the expectation that the federal government will have to provide relief to all states that have lost tax revenue through no fault of their own. In that, he’s won praise from the Illinois Economic Policy Institute, which credited his Restore Illinois plan with speeding a more robust recovery than the national average, much more so than in states recently hit with new spikes in cases like Florida, Texas, and California.
Even so, the Illinois Department of Employment Security reported this month that cuts in government employees were acting as a drag on that recovery. As the state unemployment rate dropped, and “nonfarm payrolls added more than 142,800 jobs in June, a record monthly increase,” nevertheless “other sectors continued to suffer, led by cuts in public government jobs (down 19,000).”
The Office of the Governor has estimated the state faces $6.2 billion in lost revenue in the fiscal year that began this month, although it could rise to $7.4 billion if voters fail to endorse Pritzker’s proposed progressive income tax by approving the Fair Tax Amendment by a 60 percent supermajority in November.
Yet congressional debate over a new coronavirus relief package this week found negotiations breaking down just among Republicans. Even though every state is going to face the need to make up for lost revenues, Sen. Rick Scott of Florida led complaints about providing a “bailout” to states.
Understand, this is not a bailout. As Pritzker has previously declared, it’s money needed to make up for lost revenue, not to address the state’s pension backlog, which his latest budget actually made an attempt to address — including renewed contributions to the state’s so-called rainy-day fund — before the pandemic hit.
The Center on Budget and Policy Priorities has put the nationwide price tag for needed support for state and local governments at $555 billion. It estimated that the HEROES Act, a coronavirus relief bill that has already passed the House, would provide “about $540 billion for states, localities, territories, and tribal governments.” The center called that “a sound starting point.”
Yet sudden budget hawks like Sen. Rand Paul, who voted for the $1 trillion tax cut to the rich at the end of 2017, complain that that’s too much and would add to the U.S. government deficit that was already increased by that earlier tax cut.
Rubbish.
Working from data supplied by the Congressional Budget Office, National Public Radio found that four earlier COVID-19 relief bills, including the $2.7 trillion CARES Act, supplied $1.86 trillion in benefits to businesses in the form of tax breaks, no-interest loans, and the Paycheck Protection Program, which the Associated Press found went first and foremost to big companies obtaining loans of up to $10 million.
“Larger companies with connections to major national or regional banks got priority treatment in the program’s initial phase, the data show,” according to AP, “while many smaller businesses said they were turned away because the banks required them to have a checking account, a credit card, and a previous loan to be considered.”
State and local governments got just over $200 billion in that package, but it was tied to spending to address the pandemic. Although negotiations on the new relief package have included talks to allow states to reallocate that funding to budget shortfalls, much of it has already been spent just to make the progress that’s been made thus far to slow the spread of COVID-19 — even as it continues to rage across the Sun Belt.
Fiscal conservatives are resisting $555 billion needed by states, even as they’ve already handed out $1.86 trillion to businesses.
Nuff said.