Economists cite need for state, local COVID relief
Police, fire, teachers are not only essential workers, they bolster economy and spur recovery
Not only is public education critical at all times, especially so in a pandemic, but economists say training at community colleges and universities is also key to spurring any economic recovery. (Shutterstock)
By Ted Cox
A bipartisan panel of economists recently laid out the case for additional COVID-19 relief to go to state and local governments.
The Economic Policy Institute held a webinar with a handful of economists on the theme of “The Way Out Through State and Local Aid.” Moderator Heather Long, economics correspondent at The Washington Post, asked each an “elevator” question, saying, “If you had 30 seconds in an elevator with a Republican lawmaker to try to convince them why we need state and local aid now, what would you say?”
The webinar was held in late August, but remains extremely timely after a COVID-19 relief plan backed by Republicans failed to clear the Senate Thursday. The $500 billion plan came up well short of the $3 trillion HEROES Act that passed the U.S. House in May and has been ignored by Senate Majority Leader Mitch McConnell of Kentucky. U.S. Sen. Bernie Sanders of Vermont called the GOP proposal “pathetic,” and his Illinois colleague Dick Durbin labeled it “a purely symbolic and political effort that did not prioritize the needs of Americans facing real hardship in this time of crisis.”
The economists agreed, especially on the issue of much-needed aid to state and local governments that have seen tax revenue drop with the economic collapse brought on my the pandemic.
Glenn Hubbard, of Columbia University in New York City, said, “We should have learned from the Great Recession, from the financial crisis, the very large cost of failing to come through enough for state and local governments.”
“We should learn the lesson of what happened after the Great Recession, when state and local government — once the Recovery Act aid to states ran out — their spending became a tremendous drag on growth, made that recovery take far longer than it should have,” said the EPI’s own Josh Bivens.
“For every dollar we spend on state and local assistance, it adds probably $1.70 to the size of the overall economy,” added Jason Furman, of Harvard University. “There’s nothing that economists have studied better and more carefully when it comes to fiscal policy multipliers, probably, than state and local assistance.”
Bivens said it is critical to fund essential social services, especially in the midst of a pandemic. “If you look at the second quarter of this year, sales taxes for state and local governments fell at a 16 percent annualized rate,” he said. “We’ve probably seen Medicaid enrollments rise by about 5 million between February and July. The budget crunch is already happening for state and local governments. They’re making plans for next year about what they’re going to do with their budgets. We should give them aid so part of those plans are not just cutting everything in sight in order to make their budgets balance.”
The Chicago Tribune Editorial Board made the traditional conservative argument against stimulus packages this week, insisting that governments have to be run like a business and that when money is lacking positions must be cut. But that ignores that governments are not businesses, prone to economic upswings and downturns, and instead provide essential services that must be funded no matter the state of the economy — such as law enforcement, firefighting, and public education.
To a person, the economists generally backed a theory known as “countercyclical aid,” which suggests that when the economy collapses that is the time for governments to cut taxes and spend, to stimulate the economy as in the Depression-era New Deal, and it’s in boom times that governments should cut spending and raise taxes for any future crises.
Police and fire are obvious essential services, but a couple of the economists made strong cases for education as a way to spur the recovery. “If we want to have an economy, we need to have the best shot at doing the best we can with schools,” Furman said. “That’s going to cost money. You don’t spend that money, you don’t have kids in school, you don’t have parents working, you don’t have any of the things that all of us want to have economically and otherwise.”
That’s especially true in a pandemic, when schools need extra protective equipment if they’re to open at all, or new computer equipment for remote learning — along with arrangements to be made in that case for parents who can’t stay home with kids.
Hubbard added that education potentially plays other critical roles in the economic recovery. “To get from here to there — meaning to where the economy is going to be after the pandemic — we need to focus on education and training, and a lot of that is done in public universities and community colleges,” he said. “This is not the time to be cutting support for those organizations. All in, I think support of at least $500 billion in a block grant is needed.”
The HEROES Act would provide between $500 and $800 billion to state and local governments. The GOP package, which Republicans tried to sell as what they called a “skinny” relief package, was $500 billion total and provided no additional relief to cities and states.
“It has been nearly four months since the House of Representatives passed the HEROES Act,” Durbin said in a statement after the Republican proposal failed in the Senate. “And as the toll of the COVID-19 pandemic continues to grow, Senate Republicans are still refusing to step up and provide families, workers, and local communities with adequate relief in the face of this public health and economic crisis.”
Durbin pointed out the Republican proposal “would not provide direct cash payments for families, or hazard pay for essential workers. It would not give relief to states and local communities so they can continue to pay teachers, (emergency medical technicians), and firefighters. It would cut the enhanced weekly unemployment benefits provided by the CARES Act in half. And it would provide no housing assistance or nutrition assistance for struggling families.
“This Republican proposal,” he added, “simply does not prioritize the needs of the millions of Americans facing real hardship in this time of crisis.”
The earlier CARES Act, which did clear Congress, provided aid to cities and states, but only for spending to address the pandemic, not for tax revenue lost in the resulting economic slowdown. “I’m going to say that the best time to pass state and local aid was three months ago, when we saw millions of jobs being lost. The second-best time is right now,” said Gbenga Ajilore, senior economist for the Center for American Progress. “And the reason why is that there was $150 billion given to states, $30 billion given to localities, in the CARES Act, but a lot of that was restricted.
“And the other thing was that rural areas were left out of it,” he added, an issue of special concern in Illinois. “The $30 billion only went to places that have 500,000 people or more. And so for rural areas, we need state and local aid now so that they get the money, especially given what’s coming up in the fall between schools and further cases.”
“Clearly, the economy is struggling,” said Mark Zandi, chief economist at Moody’s Analytics. “We have double-digit unemployment. We’re still down 13 million jobs from the pre-pandemic peak. State and local governments are hemorrhaging red ink, and it’s coast to coast, it’s politically ecumenical. Every state, municipality, is struggling and responding by slashing payrolls. We’re down 1.3 million state and local government jobs since February, slashing programs.
“There’s no more effective way to help the economy and to help these states and support these jobs than providing federal government aid to state and local governments,” he added. “And this is not anything that’s unusual. This is tried and true economic support. This is what we do every time we get into a recession, particularly in one like this one, and it’s pretty much a slam dunk, pretty straightforward kind of economic policy.”